1. Secretary of Defense Fellows Program 1 Secretary of Defense Fellows Program 1997- 1998

2. Secretary of Defense Fellows Program 2 SDFP Background Infrastructure 2/3 of Defense Budget – Business practices reform generates savings – Savings applicable to shortfalls Businesses outside DoD successful in: – Adapting to changing global environment – Exploiting information revolution – Structural reshaping/reorganizing – Developing innovative processes DoD needs effective access to best business practices

3. Secretary of Defense Fellows Program SDFP Organization Permanent Staff - SDSSG Director, Deputy, Admin Staff Two officers from each Service (USMC one) - High flag/general officer potential - O-6 or O-5 - Senior Service College credit Ten months at Sponsoring Company Group Education - Seminars - Wargames

4. Secretary of Defense Fellows Program 4 SDFP Objectives Final Report and Briefing to SecDef/Services – Business insights relevant to DoD culture/operations – Recommended process/organization changes 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

5. Secretary of Defense Fellows Program 5 SDFP Sponsors l 96- Prior – American Management Systems, CNN, CITICORP Hewlett-Packard, Lockheed Martin, Loral, McDonnell Douglas, Microsoft, Oracle, Northrop Grumman, Sarnoff Labs l 97- 98 – Andersen Consulting, DIRECTV, Mobil, Northrop Grumman, Sears, Southern Company l 98- 99 – Boeing, Caterpillar, Cisco Systems, Netscape, Coopers & Lybrand, Raytheon Systems

6. Secretary of Defense Fellows Program SDFP Results Program objectives fulfilled - Education, education, education - More sponsors than fellows - Inter/intra-group experience sharing Unique corporate experiences - Strong corporate support - Executive/operational level mix - Mergers/restructuring

7. Secretary of Defense Fellows Program 7 SDFP Fellows l CAPT Mark Adrick Andersen Consulting l Col Mike Marro DIRECTV l COL Larry Matthews Mobil Corporation l Col(Sel) Janet Therianos Northrop Grumman l Col(Sel) Andy Frick Sears Roebuck l CAPT Linda Nagel Southern Company

8. Secretary of Defense Fellows Program 8 Andersen Consulting l Global Consulting Firm –46 countries; over 53K Employees –1997 growth 20+%; revenue $6.6B l Organization –Core Competencies Strategy Process Change Management Technology –16 Global Market Units Aligned with specific industries (e.g. Communications) –Cross-functional/ Industry Solution Centers Secretary of Defense Fellows Program

9. 9 Andersen Consulting l Business integration approach –People + Process + Technology = Capability Changes in one factor affects all others –Focus on aligning capability with strategy l Change Management –It’s a Journey What is the destination? Are we ready to embark? Chart the course Reassess along the way- change course if needed Identify potential obstacles; manage the journey –“Rule of the Road” #1: Change is Painful! Secretary of Defense Fellows Program

10. 10 Andersen Consulting Observations/Recommendations l Infrastructure –Extensive intranet/ Mobile Computing World-wide access- work anywhere Flexibility minimizes lost productivity –Virtualization All admin/personnel mgt... functions “Paperless” –Knowledge Xchange 6000+ databases Access to firm’s knowledge capital Provides forum for communities of practice Secretary of Defense Fellows Program

11. 11 Andersen Consulting Observations/Recommendations –Develop a clear technology vision/strategy –Ensure organization has requisite skills or Partner/Outsource – Common standards/ protocols A must for eCommerce –Emerging tech support solutions eCommerce –Electronic procurement Business training simulation tools –Human performance improvement Networked collaboration –Workplace-of-Future Secretary of Defense Fellows Program Andersen Consulting Observations/Recommendations l Technology Integration

12. Secretary of Defense Fellows Program 12 SDFP Fellows l CAPT Mark Adrick Andersen Consulting l Col Mike Marro DIRECTV l COL Larry Matthews Mobil Corporation l Col(Sel) Janet Therianos Northrop Grumman l Col(Sel) Andy Frick Sears Roebuck l CAPT Linda Nagel Southern Company

13. Secretary of Defense Fellows Program 13 DIRECTV l Fastest growing consumer electronics product in history – 3.5+ Million subscribers in 3.5 years – >1200 employees; 1997 revenue $1.1B l Direct Broadcast Satellite television – 175+ channels, all digital, 24h x 7d operations – Three geosynchronos satellites l Information Technology Department – Critical Business Systems l Data Center construction l Billing operations

14. Secretary of Defense Fellows Program 14 DIRECTV Observations l “ Virtual” business -- Mostly outsourced – Customer service – Hardware/retail sales – Billing/remittance l Outsourcing – Rationale: l Have agility l Gain capability l Avoid costs – Don’t outsource core competencies – Understand risks

15. Secretary of Defense Fellows Program 15 DIRECTV Observations l Y2K Problem – Business & government behind – Planning focus too narrow l Best case (things will work) assumed v. worst case – Systems-level effects l Electric power & utilities l Embedded processors l Rail systems l Global financial system l Local, state & Federal governments

16. Secretary of Defense Fellows Program 16 DIRECTV Recommendations l Have realistic expectations for outsourcing – Know what you need & want – Contract carefully -- Be vigilant – Be prepared to pay -- Outsourcing is not cheap l Y2K Problem – Begin scenario based planning – Look at macro systems level impacts – Assume worst case scenarios

17. Secretary of Defense Fellows Program 17 SDFP Fellows l CAPT Mark Adrick Andersen Consulting l Col Mike Marro DIRECTV l COL Larry Matthews Mobil Corporation l Col(Sel) Janet Therianos Northrop Grumman l Col(Sel) Andy Frick Sears Roebuck l CAPT Linda Nagel Southern Company

18. Secretary of Defense Fellows Program 18 Mobil Corporation l Global petroleum company – 125 countries; 43K employees – 1997 revenue $3.3B l Core competencies – Exploration/production – Marketing/refining – Chemicals l Major issues – Low margins/increased competition – Environment/geo-political risks – Diminishing technical skills – Aging US-centric workforce

19. Secretary of Defense Fellows Program 19 Mobil Corporation Observations/Recommendations l Standard Managed Info Tech Environment – Common operating systems – Standardized hardware/software – Organizations share “best practice” processes and improvements – Single point for problem resolution – Platform for growth – Significant cost reduction

20. Secretary of Defense Fellows Program 20 Mobil Corporation Observations/Recommendations l Knowledge Management – Maximizes return on intellectual capital – Levels l Deriving value from knowledge (mining) l Generating new knowledge (creation) l Continuous learning (updating) – Key components l People networks l Supporting computer technologies – Why l Limited resources l Experts leveraged

21. Secretary of Defense Fellows Program 21 Mobil Corporation Observations/Recommendations l Outsourcing – No “Silver Bullet” – Enhance core competencies -- Don’t replace – Commitment and buy-in is key – Fully understand l Current status -- Don’t outsource a “mess” l Current in-house costs l Does vendor provide more effective service – Know when to say “No!” – Do what is best for organization

22. Secretary of Defense Fellows Program 22 SDFP Fellows l CAPT Mark Adrick Andersen Consulting l Col Mike Marro DIRECTV l COL Larry Matthews Mobil Corporation l Col(Sel) Janet Therianos Northrop Grumman l Col(Sel) Andy Frick Sears Roebuck l CAPT Linda Nagel Southern Company

23. Secretary of Defense Fellows Program 23 ESSD Northrop Grumman ESSD l One of five NG major divisions – Formerly Westinghouse Defense & Electronics l Electronic Sensors & Systems Division – 11,000 employees – 200 key programs; 3500 contracts l Radar expertise forte l Corporate “Crown Jewel” – Cutting edge technology – Key components of advanced weapon systems

24. Secretary of Defense Fellows Program 24 ESSD Observations/Recommendations Northrop Grumman ESSD Observations/Recommendations l Post acquisition restructuring goals – Eliminate excess infrastructure – More efficient use of resources – Capitalize on embedded resources and disciplines l “Homeroom” model for achieving goals – Centralized base of operations for personnel l Develops functional skills/tools/services/processes l Administers training, career development l Manages talent pool

25. Secretary of Defense Fellows Program 25 l “Homeroom” Benefits – Standardized processes – Leveraged use of tools – Effective use of personnel – No added overhead l DoD application – Joint warfighting CINC development – Benefits l Develop/track future commanders l DoD-wide view of talent l Centralized quality control/standardized processes l Common joint commander perspective Northrop Grumman ESSD Observations/Recommendations ESSD Observations/Recommendations Northrop Grumman ESSD Observations/Recommendations

26. Secretary of Defense Fellows Program 26 ESSD Recommendations Northrop Grumman ESSD Recommendations l Acquisition Reform – Progress -- Huge thumbs up – Market Pricing next step l Move from Contract Cost Pricing Cost Pricing = rigorous, detailed accounting After development, Pre-production, LRIP l Market Pricing = Commercial Practice l Saves $$$ Eliminates excessive infrastructure Government and industry

27. Secretary of Defense Fellows Program 27 SDFP Fellows l CAPT Mark Adrick Andersen Consulting l Col Mike Marro DIRECTV l COL Larry Matthews Mobil Corporation l Col(Sel) Janet Therianos Northrop Grumman l Col(Sel) Andy Frick Sears Roebuck l CAPT Linda Nagel Southern Company

28. Secretary of Defense Fellows Program 28 SEARS ROEBUCK & CO. l Large, complex, full service retailer –3,200+ stores; 300K associates nationwide –60+M households l Retail Industry Leader –Customer database management innovator l Sears Logistics Group –Tailored logistics solutions –Paradigm: Flow -- Don’t store –Total logistics chain visibility –Sears horizontal strengths leveraged Secretary of Defense Fellows Program

29. 29 SEARS ROEBUCK & CO. Observations/Recommendations l Build a winning culture –Employee ownership the key! l Relate pay/benefits to business strategy –Goal sharing/performance bonuses l Admit mistakes & handle quickly –Reputation built on trust & integrity l Foster climate of innovation –Manage for long term w/ short term goals Secretary of Defense Fellows Program

30. 30 SEARS ROEBUCK & CO. Observations/Recommendations l Strategic vision –Top-down adaptive planning Clear concise guidance –Multiple, interwoven plans –Balanced objectives –Information systems the “glue” l Focus on meeting changing customer needs Secretary of Defense Fellows Program

31. 31 SEARS ROEBUCK & CO. Observations/Recommendations l People –Military cannot compete w/ compensation –New paradigm needed l Vendors –Strategic partnerships, cooperative solutions –Expand outsourcing Non-core capabilities l Technology –Apply, integrate -- Don’t chase Secretary of Defense Fellows Program

32. 32 SDFP Fellows l CAPT Mark Adrick Andersen Consulting l Col Mike Marro DIRECTV l COL Larry Matthews Mobil Corporation l Col(Sel) Janet Therianos Northrop Grumman l Col(Sel) Andy Frick Sears Roebuck l CAPT Linda Nagel Southern Company

33. Secretary of Defense Fellows Program 33 Southern Company l Vertically integrated holding company – Five Southeast US electric utility companies l Largest US electricity producer; most profitable – Diversified, unregulated companies (e.g. gas) – 29,000 employees l Preparation for re-regulation & competition – Acquiring generating capacity/commercial customers throughout US. – Global presence in six countries l #4 in worldwide generating capacity – Marketing and trading energy as a commodity

34. Secretary of Defense Fellows Program 34 Southern Company Observations l Massive, top-down driven culture change – Shift from managing assets to satisfying customers – Attempting to quantify impact on revenue from increasing customer satisfaction l Streamlining business planning – Tighten link of company goals to budget process – Five year budget, three year emphasis

35. Secretary of Defense Fellows Program 35 Southern Company Observations l High emphasis on shared goals tied to pay – Tighten link of company goals to individual performance, evaluation and compensation l Link improvement in customer satisfaction to pay via incentives l Implied contract with employees re-written – No longer “job for life” – Must be flexible l job description l location l hours

36. Secretary of Defense Fellows Program 36 Southern Company Recommendations l Reward TEAMWORK, not just individual performance l “Family of performers,” not “family for life” l Review processes, don’t just automate l “Shared services” for common processes – Travel, personnel, C4I – Don’t duplicate management at both Services and DoD level l Outsource very carefully

37. Secretary of Defense Fellows Program 37 SDFP Common Observations/Recommendations l Y2K Problem – Primes OK; Subs and Overseas way behind – Legal liability a growing roadblock – Major disruptions likely; contingencies required l R & D – Critical to longevity – $$$ fenced l Innovation – Risks taken – Failed experiments expected l Not career threatening

38. Secretary of Defense Fellows Program 38 SDFP Common Observations/Recommendations Change management plan a must – Determine actual processes first – Educate and empower employees in changes – Multi-year process; leadership continuity critical l I ncentives – An absolute for change – Fear not enough; benefits must be shared Internal Organization – Flexible/dynamic structure – Collaboration/Teaming l Info tech the enabler

39. Secretary of Defense Fellows Program 39 SDFP Common Observations/Recommendations Information Technology – Lease to maintain state of the art – Enterprise-wide architectures/protocols a must – Enabler for common admin function processes – Paperless/deskless/virtual when sensible l Strategic Planning/Vision – Topdown, not bottom up l Fiscal Planning – 18-36 months max

40. Secretary of Defense Fellows Program 40 SDFP Common Observations/Recommendations l Outsourcing – Determine core business key - don’t outsource l Demographic imperatives – Workforce shortage – Industry increasingly forced to educate – Growing competition with military for skills Partnerships/Teaming – Trust, sharing -- Not adversarial Culture – High employee value compensated