1. Secretary of Defense Corporate Fellows Final Report of the Secretary of Defense Corporate Fellows Program 2003 - 2004

2. Secretary of Defense Corporate Fellows 2 Agenda Background Common Findings/Recommendations Individual Experiences (time permitting)

3. 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

4. Secretary of Defense Corporate Fellows 4 SDCFP Organization Two 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 Eleven months at Sponsoring Company Permanent Staff – SDCFP Director, Admin Assistant – Net Assessment for oversight – National Defense University for Admin support

5. Secretary of Defense Corporate Fellows 5 SDCFP Sponsors 03 - Prior – ABB, Accenture, Agilent Technologies, American Management Systems, Boeing, Cisco, DirecTV, Enron, FedEx, Hewlett-Packard, Human Genome Sciences, IBM, Lockheed Martin, Loral, McKinsey & Co., McDonnell Douglas, Merck, Microsoft, Mobil, Netscape, Oracle, Northrop Grumman, Pfizer, PricewaterhouseCoopers, Raytheon, Sarnoff, Sears, Southern Company, Sun Microsystems, 3M, United Technologies 03 - 04 – Amgen, DuPont, General Dynamics, McKinsey, Microsoft, Northrop Grumman, Oracle, Sarnoff 04 – 05 – 3M, Caterpillar, Cisco, Hewlett-Packard, Honeywell, Merck, Lockheed Martin, SRA International

6. Secretary of Defense Corporate Fellows 6 SDCFP Results Program objectives fulfilled – Education 3 DoD, Individual officers, Sponsors – More Sponsors than Fellows available – Intra-group experience sharing Unique corporate experience – Strong corporate support – Executive/operational level mix – Mergers/restructuring

7. Secretary of Defense Corporate Fellows 7 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 to SecDef, others – Business insights relevant to DoD culture/operations – Recommended process/organization changes

8. Secretary of Defense Corporate Fellows “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… “ Secretary of Defense Donald Rumsfeld Remarks to The National Defense University 31 January 2002

9. Secretary of Defense Corporate Fellows 9 2003 - 2004 Fellows COL Pete BlaberAmgen, Inc. Thousand Oaks, CA CAPT Nancy DeitchSarnoff Corporation Princeton, NJ COL Tony GlennNorthrop Grumman Electronic Systems Linthicum, MD LTC/P Tom Hopkins Oracle Corporation Reston, VA LtCol Chet JolleyMcKinsey & Company Cleveland, OH Col (sel) Jerry MartinezE. I. DuPont de Nemours & Co. Wilmington, DE CDR Doug SwansonMicrosoft Corporation Redmond, WA Col Tom TinsleyGeneral Dynamics Scottsdale, AZ

10. Secretary of Defense Corporate Fellows 10 Agenda Background Common Findings/Recommendations Individual Experiences (time permitting)

11. Secretary of Defense Corporate Fellows 11 Framework People Technology Process Enterprise Architecture Improving DoD in 2004 and Beyond

12. Secretary of Defense Corporate Fellows 12 Topics Performance Management DoD Acquisition Applications Infrastructure Technology Process Leadership Workplace Trends Safety People Enterprise Architecture EA

13. Secretary of Defense Corporate Fellows 13 Leadership Processes to grow leaders unique by company…. – Leadership development considered important by all companies Development programs varied greatly by organization Corporate path to success not always defined Management verses leadership not always understood – DoD viewed as benchmark of leader development Transformation is tough – People do not like change – Job loss creates panic, with corresponding impact on results – Vision not always understood – Communication is critical to the process – Essential to long-term survival People

14. Secretary of Defense Corporate Fellows 14 Relevance to DoD Continue leader development at every level – Strategic thinking, core values, risk management – Leadership development for DoD civilian personnel Make transformation every leader’s job – Communicate the strategic vision throughout the organization – Enforce accountability and responsibility People Maintain DoD as the leadership Center of Excellence

15. Secretary of Defense Corporate Fellows 15 Workplace Trends – HR Implications Increased competition for technical talent – Recruiting – hiring – diversity – retention Aging workforce – retirement “bubble” – Knowledge retention & transfer – hiring Generational perspective (Boomers v. Gen-X’ers v. Millenials) – Organization structure – work expectations – leadership Acceleration of information & technology exposure – Training & development – knowledge management Increased need for talent mobility – Compensation & benefits – relocation – flexibility Transformational change in the workplace People

16. Secretary of Defense Corporate Fellows 16 Remove barriers to government service – Create programs to attract/keep the right talent – Predictability in assignments, promotions, terminations – Link pay, rewards and incentives to performance Pay attention to generational perspectives – Organization structure, work expectations, leadership – Value people, ensure early training & development – Top down focus on work life balance Structure HR system to support changing workforce – Create anytime-anywhere workspace networks – Telecommuting, flex-place work, self managed teams – Rotational assignments, succession planning, mentoring Relevance to DoD People Transformational change in the workplace

17. Secretary of Defense Corporate Fellows 17 Safety Safety essential to all businesses – Most incidents are preventable – Lost employee time produces significant financial impact At DuPont – Working safely a condition of employment – Immediate attention to and resolution of deficiencies Management audits a must – Extends off the job and into the home People

18. Secretary of Defense Corporate Fellows 18 Relevance to DoD Consider outside review of safety programs Safety continues to be a leadership responsibility – Set expectations – Demonstrate business value – Reward and recognize – Maintain accountability People

19. Secretary of Defense Corporate Fellows 19 Performance Management Transformational process improvement philosophies for UK Ministry of Defense and leading private sector companies – Lean - Designed to eliminate waste in a system – Six Sigma - Statistically based, improves quality by minimizing process variability Each philosophy at its core strives to improve – Operating system – Management Infrastructure – Mindsets and behavior Dramatic results from Lean & Six Sigma observed – I ncreased productivity 20-40% – Quality improvements 50-75% – Lead-time reductions 60-95% Process

20. Secretary of Defense Corporate Fellows 20 Relevance to DoD Initiate an end-to-end performance management study across DoD logistics processes – Review results of UK MoD end to end study; apply best practice – Include supplier and supply chain practices – Apply appropriate resources and training – Develop requirements, key performance indicators and incentives Partner with leading change management professionals to ensure success Export to other functional areas across DoD Process Decision by Fact

21. Secretary of Defense Corporate Fellows 21 DoD Acquisition Processes and structure do not support warfighter requirements – Gaps between industry, acquisition community, warfighter – Technical/financial/procedural gaps between research and productization – Innovation responsibility shift from DoD to commercial sector – Self imposed constraints hinder best product Emphasis on COTS comes at a price – Exacerbates configuration control challenges – Introduces potential security risks Out-sourcing/Off-shoring – Industry trying to simultaneously reduce cost, return value to the shareholder – International Traffic in Arms Regulations (ITAR) Challenges in industry drives cost Process

22. Secretary of Defense Corporate Fellows 22 Relevance to DoD Align, plan and resource to achieve jointness Identify and fund basic research areas where DoD lead is critical – Fix the DoD laboratories (workforce, infrastructure, mission) – Reevaluate ITAR language – Address Intellectual Property ownership and classification – Facilitate multi year funding Facilitate agility through innovative industry/govt partnerships – Federally Funded Venture Capital Process

23. Secretary of Defense Corporate Fellows 23 Applications Significant efficiencies gained through Self Service Applications – Oracle SSA reduced HR staff by 50%, increased employee satisfaction – Online access to pay, benefits, healthcare, expense reports, business metrics Suite of Applications saves integration spending – Adapt business process to Enterprise Resource Plan (ERP) What you need… not what you want – Best of breed drives multiple instances of data, reducing accuracy – Strong corporate leadership enabled transformation to e-business Welch at GE, Ellison at Oracle Technology Technology won’t change culture or fix a broken process

24. Secretary of Defense Corporate Fellows 24 Infrastructure Consolidation & Simplification of infrastructure yields significant savings – Oracle Worldwide Network consolidation: e-mail servers: 97 2 e-mail databases: 120 4 ERP databases: 70 5 – Overhead converted into revenue generators >70% reduction in IT Staff >80% reduction in number of applications >55% reduction in IT spending – “Single Global Instance” Increases accuracy, availability and efficiency Technology

25. Secretary of Defense Corporate Fellows 25 Relevance to DoD Accelerate & broaden use of DIMHRS-like Self Service Apps: – Global customer service centers with expert staff Authority to solve problems – Broaden functionality to include finance, healthcare, travel etc. Reduce integration spending through common applications – Curtail proliferation of apps, establish migration plan within functional areas – Network Centric/Sense and Respond Ops highlight need for commonality Navy/USMC logistics integration could be a model for DoD Accelerate consolidation of DoD’s IT infrastructure – Increase accuracy and integrity of data – Outsourcing allows for reduced reliance on hard to retain MOS’s SSA and Consolidation key to improving tooth-to-tail Ratios Technology

26. Secretary of Defense Corporate Fellows 26 Enterprise Architecture EA is… – Required by Clinger-Cohen Act – A holistic view of the business enterprise – Strategic plan, organization, people, process, technology integrator Business architecture determines success. – Reflects strategy and core competencies – Centralize and matrix common support services Application & Data Architecture – Provide information to support the mission and business Infrastructure Architecture provides access to information Security architecture must be part of all EA EA not a common finding in industry

27. Secretary of Defense Corporate Fellows 27 Relevance to DoD Architecture development within DoD more deliberate, slower than industry – Business Enterprise Architecture (BEA) – Business Management Modernization Program (BMMP) Development and implementation of transformation initiatives – Leadership role decisive – Authority and accountability for success – Incentives and rewards Have an architecture, but … – Don’t get lost in the analysis – Do build security in from the ground up – Do make sure the IT architecture supports the mission EA

28. Secretary of Defense Corporate Fellows 28 People Transformation requires relentless leadership Process DoD not unique, must be viewed as an enterprise Adopt industry best practices Technology Do more … spend less … consolidate… Patriotism for troops runs high

29. Secretary of Defense Corporate Fellows 29 Agenda Background Common Findings/Recommendations Individual Experiences (time permitting)

30. Secretary of Defense Corporate Fellows 30 Amgen, Inc. World's largest biotechnology company Goal: Unleash body's own powerful therapeutic responses Methodology: – Utilize cellular/molecular biology and medicinal chemistry – Discover, develop, commercialize naturally occurring agents Proteins, antibodies, small molecules Assignment: Office of Program Change Management

31. Secretary of Defense Corporate Fellows 31 Amgen Observations OPCM – Empower Amgen to achieve enhanced performance – Deploy a proactive change capability – Utilize a common set of tools Facilitation, problem-solving, change management Internal capability for continuous improvement essential – Sustains Amgen competitive advantage – Ongoing Change Program provides Consistent and effective approach Issue identification, problem-solving, change management

32. Secretary of Defense Corporate Fellows 32 Recommendations Pursue an ongoing Change Program – Common language and methodologies for problem solving – Institutionalize focus on continuous organizational improvement – Focus on increasing efficiency and effectiveness in everything – Sustain U.S. Military competitive advantage Stay ahead of global threat environment

33. Secretary of Defense Corporate Fellows 33 A science company for more than 200 years – Employees:79 K in 75 countries – Revenue:$23 B for 2003 – Five company Platforms – Agriculture & Nutrition – Coatings & Colors, – Electronic and Communication Tech – Performance Material – Safety and Protection – Solving problems to make people’s lives better, safer, and easier. Corporate Strategy – Launch “The New DuPont” - Transformation to a sustainable growth company – Reinforce Core Values – Safety, Environmental Stewardship, Respect for People, Ethical Values – Grow revenue at more than $1 Billion annually Assignment: Safety and Protection Group; all business aspects E. I. Dupont de Nemours & Co.

34. Secretary of Defense Corporate Fellows 34 Dupont Observations Employees dedicated, hard working, honest, and loyal Incredibly bold transformation to ensure aggressive sustainable growth – Selling textile business (Invista); approx 1/4 of company worth $7B – Aligning innovation pipeline with market and customer requirements – Rebalancing resources toward high growth markets and regions – Standardizing systems and processes, leveraging scope of “One DuPont” Safety program unlike any; almost “extreme” or “cult like” – Benchmark for Industry; consultants for numerous fellow corporations – 18,000 injuries and 50 deaths avoided over last three years – 10-point safety philosophy understood by all; employees “fear” getting injured – “Goal is Zero” placards everywhere! Building relationships critical to winning in business – Money extremely important….but willing to invest it in relationships Business world craves leadership – Large investment in training and education; roadmap to success not clear Communication from top part of norm

35. Secretary of Defense Corporate Fellows 35 Recommendations Invest in larger “outside” perspective on safety – Invest in safety overhaul through consultant expertise – Develop a leadership track for safety professionals – Hold leaders to greater accountability Provide greater top down communication directly to troops – Goals, objectives, updates, expected outcomes, actual outcomes – Safety incidents, DUI accountability, integrity violations, UCMJ – Holiday messages and “pats on the back” Emphasize Partnering within DoD – Build culture highlighting importance of counterpart relationships – Weigh financial cost verses mission effectiveness – Encourage face to face discussion when applicable or needed

36. Secretary of Defense Corporate Fellows 36 Fifth largest U.S. defense contractor – Employees:67 K worldwide – Sales:$23 B for 2003 ( 20 % increase over 02) – Main business segments – Aerospace - Leading builder of large-cabin and mid-size business jets – Combat Systems – Information Systems and Technology – Marine Systems Corporate Strategy – “Strength on your side” – Increase market share for sophisticated defense systems to US/Allies Assignment: C4 Systems (formally Decision Systems) – 3.5 K employees; 2003 revenues of $1 B + – Battle management, C4ISR, INFOSEC, space and homeland security – Working in all three divisions at all levels General Dynamics

37. Secretary of Defense Corporate Fellows 37 General Dynamics C4S Observations Corporate employees are dedicated members in our nations defense Merging two Information Systems & Technology segment companies into one – Previously competing GD business units – Organization size doubled (3.5K to 7K); $2.2 B in ‘04 – Challenges merging organizations with different financial and business models Highly integrated IT support and targeted software to streamline processes – Specialized and integrated software to automate end-to-end travel functions – Leasing/outsourcing IT services to ensure cost efficiency and continued modernization Building competitive teams that benefit business and DoD – Joint Tactical Radio System (JTRS) Cluster 5 teaming approach and strategy Ensures best technology while enabling competition in manufacturing final product Frustration with DoD Acquisition Process – Overall Services road map and vision lacking – Doesn’t allow businesses to plan for investment and opportunities – Program instability forces tailoring of both R&D and future program investment – Warfighter’s needs and expectations lost in the overall process

38. Secretary of Defense Corporate Fellows 38 Recommendations Invest in Joint integrated IT support and applications – Develop DOD-wide standardized IT solutions/modernization plan – Invest in common travel and pay support technology – Outsource IT support for common administrative functions Change cultural mindset for future acquisitions – Develop Joint and Service specific road maps Detailed and realistic expectations; follow budgeted plan – Better educate contractors on roles and missions Before RFPs are written on specific systems – Contractor access (with acquisition oversight) to “end user” Provide contractor with Concept of Operations, test plans Ensure warfighters get what they need

39. Secretary of Defense Corporate Fellows 39 McKinsey & Company World’s leading management consulting firm – Over seventy five years old – 1,000-plus clients; 100 of the top 150 global companies – Serving, touching every major industry. – Partners/employees from more than 100 nationalities – Alumni constitute a dynamic professional network Strategy: Improve client strategies, organizations and operations. – Help leading/potential leading companies – Provide counsel to senior management – Help achieve substantial, lasting improvements in performance Values based consultancy – High professional standards, outstanding character, sharp analytical minds – Ability to work effectively with people at all levels in an organization ASSIGNMENT: Operations, Strategy & Effectiveness Practice (OS&E)

40. Secretary of Defense Corporate Fellows 40 McKinsey Observations Professional service firms bring expertise, analysis, problem solving – External change agents critical in the transformational process – ‘One Firm’ concept ensures client receives benefit of all firm’s resources Regardless of geography or industry Extensive networking tools and knowledge management – Companies attempting to remain or become competitive Manufacturing practice is fastest growing area – Applying Lean Manufacturing principles to industry transformation – Lean Manufacturing, Six Sigma dominant transformational philosophies Lean as an ‘End To End’ transformation process Six Sigma a lever complementing the Lean process – Some firms, companies center transformations on Six Sigma alone

41. Secretary of Defense Corporate Fellows 41 Recommendations Closely review Lean Transformation efforts of the UK Ministry of Defense – Apply best practices to DoD Begin diagnostic for an End-to-End review of DoD logistics & maintenance – Determine potential savings and possible increased performance Consider applying Six Sigma to aviation/ground safety programs – Eliminate mishap causal factors variability Maintenance, human error, etc.

42. Secretary of Defense Corporate Fellows 42 Microsoft Corporation The corporation – “Your potential, our passion” – 53 K employees world-wide; 26 K in Puget Sound area – $9.993 B net Income in 2003 – Subsidiaries in over 75 countries; 27% of revenue international – Matrixed organization evolving - Seven supported Profit & Loss centers Assignment: Chief Information Officer – IT operations processes, Six Sigma, Globalization Microsoft IT – 7 K servers, 150K PC’s, 400 applications. 4.5 M internal e-mails daily – Strategic Focus “First and Best Customer” Model Enterprise/IT Showcase Embody Trustworthy Computing Enterprise Computing Scenarios ??? Build Agility

43. Secretary of Defense Corporate Fellows 43 Culture – Entrepreneurial spirit; accepting change – Heroes, Darwinistic, does not promote organizational learning People – selection, development, retention – Recruit the best and retain them. – Better no one than anyone – Getting rid off non-performers hard – Employee orientation spans several months – Continue to instill values, identify and develop future leaders. – Diverse experience is a strength; frequent job changes a plus – People can work in a matrixed organization Microsoft Observations

44. Secretary of Defense Corporate Fellows 44 Leadership – Change begins at the top – Clear, consistent, message gets through, random messages don’t – “Thought Leadership” – elevate good ideas – Business case < 3yr payback – Outsourcing non-core is a viable way to reduce cost Process – Repeatable processes are important (lacking at MS) – Fledgling Six Sigma program – Change is hard, sometimes need change by decree – Culture can impede or enable change Microsoft Observations

45. Secretary of Defense Corporate Fellows 45 Continue clear, consistent message on transformation Continue to support, embrace, institutionalize process change tools methods – Six Sigma, Lean, etc. – Hire outside experts to develop core competency – Leads to “decision by fact” and efficient, effective organizations Leadership Development is key Continue to evolve culture towards one that embraces change, – Change by decree is still valid Do look to outsourcing more as a means to transform Don’t always assume industry knows best! Recommendations

46. Secretary of Defense Corporate Fellows 46 Leading supplier of warships, bombers, and military electronics – Employees:120,000 in all 50 states & 25 countries – Revenue:$25-26 B (est.) for 2003 – Customers:DoD 86%, International 8%, Commercial 6% – Premier aircraft, space and missile defense company – Premier airborne radar & electronic warfare systems provider – Largest federal IT provider Corporate Strategy – Build portfolio of technologies essential to system-of-systems – Across all platforms and services – Aggressively pursue emerging opportunities – Apply advanced technologies and human capital across the company – Constantly improve program and financial performance Assignment: VP, Strategic Plans and Analysis, NG Electronic Systems Northrop Grumman

47. Secretary of Defense Corporate Fellows 47 Northrop Grumman Northrop Grumman Observations Highly successful transformation to first-tier global defense company – Systems integrator, principal subcontractor, teammate, preferred supplier – Leveraging transformation to provide discriminating technology – Sound management practices in place Corporate/sector integration key to customer focus and future growth – Strong management team mitigates some acquisition risk – Acquisitions bring large-scale system integrator capability under one roof – Internal organizational alignment a major challenge Effective process improvement programs – Enterprise Resource Planning (ERP), e.g., SAP, Lean, Six Sigma – Improving cash flow, inventory management, cycle times – Moving people to work, consolidating functions, closing facilities – Leveraging tools to reduce costs, eliminate waste, improve efficiency Focused on recruitment, retention, leader development, incentives

48. Secretary of Defense Corporate Fellows 48 Recommendations Improve DoD human resource strategy – Build a leader development strategy for civilian employees – Tailor follow-on assignments to individual needs – Incentivized pay and rewards for high performance Ensure metrics and measures at OSD and Service level – Focus strategic planning on desired outcomes – Greater emphasis needed on execution and accountability – Goals, objectives, action plans at all echelons Implement Lean & Six Sigma principles to improve efficiency – Eliminate duplicative organizational structures – Ensure commonality across the Department – Partner with industry on best practices

49. Secretary of Defense Corporate Fellows 49 World’s largest enterprise software company – Employees: 42K + in 147 Countries – Revenue: ~$10B – Customers: DoD largest single customer, ~$150M Americas 59%, Asia/Pac 13%, Europe/Middle East/Africa 28% – Leading provider of Database Technology, e-Business Suite, Application Server, Outsourcing, and Consulting Services Tailored solutions for DoD in HR, Financials, Net Centric Warfare Corporate Strategy – Gain business applications market share – “Do more, pay less” through enterprise grid computing – Offer efficiencies to government and private sector through outsourcing – Grow DoD relationship from “vender of choice” to “trusted strategic partner” Assignment: Senior Vice President, Oracle Federal Sales Oracle Corporation

50. Secretary of Defense Corporate Fellows 50 Significant efficiencies/personnel reductions via World-wide Support – Web based Self Service applications handle majority of HR and payroll issues – Turned support staff into revenue generators (tooth to tail) Applications Suite saves integration spending – Optimizes vertical performance at expense of enterprise wide BI and integration – Drives multiple instances of data, reducing accuracy of information – Strong corporate leadership enabled transformation to e-business Changing technology was the easy part, convincing people to change was hard Directed change to business processes vice customized software – Tens of thousands of systems in DoD No clear migration plan within functional areas (Logistics, med, personnel etc..) Global IT initiative resulted in significant savings – 97 e-mail systems down to 1 - savings in hardware, software and personnel – $30M annual savings on infrastructure that supports 40K employees Oracle Observations

51. Secretary of Defense Corporate Fellows 51 Centralize HR functions – Consolidated global “customer service” center Manned by experts with authority to solve problems – Improve “tooth to tail” by reducing HR staff in troop units Accelerate outsourcing of IT infrastructure – Reduced reliance on hard skill, hard to retain MOSs – Improved tooth to tail – Increased reliability from industry’s experts Centralize financial operations – Consolidated global “customer service” center Manned with experts with authority to solve problems – Natural evolution: Class A Officer, Direct Deposit, Global Support – Reduced financial staff in troop units Consolidate e-mail infrastructure – Regional versus organizational Recommendations

52. Secretary of Defense Corporate Fellows 52 Sarnoff Corporation Founded in 1942 as the RCA research lab For-profit subsidiary of SRI International since 1987 Innovative electronics-based research organization – 500+ employees – $100M revenue – 19 spin-offs; first IPO in May 00 – Expansion into life sciences New CEO – mid CY 02 – Reinventing the company Producing value for the client Transitioning the Valley of Death between investment and profit

53. Secretary of Defense Corporate Fellows 53 Sarnoff Assignment Office of the Chief Technology Officer – Globalization and the establishment of Sarnoff India Right sourcing, right sizing Overseas incorporation Security/export compliance Extended program management Communication, internal and external – Venture development and execution Vital Signs Monitoring – Programmatic support Combat Zones That See Generalized Emulation of Microcircuits