Final Report of the Secretary of Defense Corporate Fellows Program 2001 - 2002

1. Final Report of the Secretary of Defense Corporate Fellows Program 2001 - 2002

2. 2001 - 2002 Fellows • CAPT Natalie Young-Aranita Cisco Systems, Inc. San Jose, CA • Col David Ziegler 3M Company St. Paul, MN • LTC June Sellers Merck & Company, Inc. Whitehouse Station, NJ • LtCol Clyde WoltmanUnited Technologies Hartford, CT • LTC Bob StanleySears, Roebuck & Company Hoffman Estates, IL • Lt Col Linda Medler Oracle Corporation Reston, VA • CDR Joe Beadles AMS, Inc. Fairfax, VA

3. Agenda • Background • Common Observations/Recommendations • Individual Experiences (time permitting)

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

5. SDCFP Organization • Two officers from each Service • High flag/general officer potential • O-6 or O-5 • Senior Service College credit • Eleven months at Sponsoring Company • Group Education • Permanent Staff • SDCFP Director, Admin Asst. • Net Assessment for oversight • National Defense University for Admin support

6. SDCFP Sponsors • 01 - Prior • ABB, Accenture, Agilent Technologies, AMS, Cisco, DirecTV, Enron, FedEx, Hewlett-Packard, Human Genome Sciences, Lockheed Martin, Loral, McKinsey & Co., McDonnell Douglas, Microsoft, Mobil, Netscape, Oracle, Northrop Grumman, PricewaterhouseCoopers, Raytheon, Sarnoff, Sears, Southern Company, Sun Microsystems • 01- 02 • AMS, Cisco, Merck, Oracle, United Technologies, 3M, Sears • 02 – 03 • Boeing, FedEx, Pfizer, PricewaterhouseCoopers, Raytheon Aerospace, Southern Company, Sun Microsystems

7. SDCFP Results • Program objectives fulfilled • Education, education, education • More Sponsors than Fellows available • Intra-group experience sharing • Unique corporate experiences • Strong corporate support • Executive/operational level mix • Mergers/restructuring

8. SDCFP Products • Report and Briefingsdirectlyto SecDef, others • 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

9. Agenda • Background • Common Observations/Recommendations • Individual Experiences (time permitting)

10. Corporate America Market-centric “war” footing “Bottom Line” urgency drives change across corporation Ruthless advocates for business efficiency & the customer Spontaneous, continuously evolving technology base Peacetime DOD Service-centric OT&E footing “Ambiguous Future” restrains rapid change across Services Moral advocates for mission effectiveness & the warrior Structured technology development, change by blocks Two Different Cultures . . . . . . With Best Practices to Share

11. Areas of Interest • Organizational Agility • Transformational Culture • Collaborative Teaming • The Power of Change Management • Information Technology • Exploiting the Web • IT Role in Organizational Success • Business Processes • Leveraging Size for Spend • Outsourcing • Supply Chain Management • Organizing for e-Business Transformation • Human Capital • Talent and Performance Management • Efficient Employee/Customer Support

12. Organizational AgilityTransformational Culture • Corporate America uses culture to align the work force • “Change” and “continuous improvement” articulated as the norm • Individual performance plans linked to efficiency initiatives • Internal and external communications foster “buy-in” • DoD should: • Develop & communicate unified vision, mission, and goals • Develop in coordination with Service & Agency Heads • Widely disseminate through all command levels • Reinforce at every leadership contact with military/civilian workers • Identify and leverage ops/business best practices across DoD • Form ad hoc teams to identify and benchmark • Develop and submit processchanges

13. Organizational AgilityTransformational Culture (Cont) • DoD should: • Reward performance that leads to efficiency • Tie pay/promotions/awards to specific accomplishments • TSP matching Funds and/or U.S. Savings Bonds • Permit organizations to recoup dollars saved for future use • “Brand” DoD as an attractive industry partner • Allow fair (market) profit that exceeds “hurdle rate” • Share Risk--especially R&D • Streamline bid/contract processes • Adopt industry standards more aggressively • Financial Management • Auditing • Contracting

14. Organizational AgilityCollaborative Teaming • Corporations balance power of teams with unity of effort • Ad hoc teams spontaneously collaborate at all levels • Teams increasingly extend outside of corporation • DoD should: • Encourage cross-Service/Agency relationships to tackle issues • Planning, Operations, Procurement • Foster greater tolerance for “out of chain” communications • Reward success • Communicate clear “guide stars” to align teams with vision • Develop network infrastructure to link teams and data sources • Introduce shared change management disciplines

15. Organizational AgilityChange Management • Corporate America driving agility/adaptability through formal change disciplines • Not just old initiatives with new face (i.e. TQM) • Common language and standardized tools • DoD should: • Introduce a shared, formal change management discipline • Six Sigma or equivalent • Dedicated, fully resourced effort required • Build momentum with low level demonstration effort • Prospective Project - Travel Voucher Program • Include change management in Mil/Civ Professional Education • Champion and incentivize change--measure results • Set organizational level objectives for change • Tie individual performance plans/evals to change objectives

16. Information Technology (IT)Exploiting the Web • Leading companies run their businesses over the Web • Transformational cost efficiency and mission effectiveness • DoD should: • Use Web for mission transactions, not just information • On-line manuals for “plug & play” weapon systems check out • On-line HR for self-help administrative processing • Internet auctions for purchase of common supplies and equipment • Revamp the Virtual Pentagon architecture pilot program • Single Pentagon IT infrastructure architecture • Begin with e-mail networks, eliminate Service-unique systems • Consolidate Pentagon IT under single joint system • Focus on new “end game” processes enabled by new IT • Then buy IT to support

17. Information Technology (IT)Exploiting the Web (Cont) SECDEF Corporate Fellows Program • DoD should: • Migrate from client-server architecture • Begin with common e-mail system—easiest to do • Re-host interactive software applications • Demand compliance with NSTISSP No. 11 security requirements • Develop more reliable, redundant system architecture • Revisit “best of breed” mindset to minimize integration costs • Phase out legacy systems as appropriate • Incrementally adopt a web-based e-business software suite • Pick the “low-hanging fruit” • i-Procurement, e-Travel, web-enabled training/education • Partner with IT industry to transform into an e-business • Institute biometrics, consolidate databases, web-enable apps

18. Information Technology (IT)ITRole in Organizational Success • Corporate America considers IT a “strategic spear” • A business enabler, not just automation support • Commits a significant portion of capital spending • Transforming processes and leveraging technology • DoD should: • Embrace spiral development for IT • Allocate share of “transformation” funding to IT • Make “operations” and “technology” equal requirement drivers • IT a full partner in operations planning - not an afterthought • Ensure better processes requiring IT to compete equally for dollars • Give CIO a vote on formal requirements panels at all levels • Articulate IT vision and the road map to enable it • Consider impact to IT road map when evaluating new weapons

19. Business Processes Outsourcing • Corporate America divesting “non core” competencies • Strategic Business Process Outsourcing (BPO) alliances • Redirecting Capital & Resources to Core Businesses • DoD should: • Continue to identify core competencies at all levels • Team with industry to provide non-core services • Personnel administration • Travel management • Finance and accounting • Education program administration • Medical services (non-combat) • Information Technology

20. Business Processes Leveraging Size for Spend • Corporate America tackling procurement inefficiencies • Only 57% of purchasing optimized (Fortune 100 survey) • Pooling purchases • Partnering with small number of high-performing suppliers • Better support and best price/value • DoD should: • Fully exploit size to leverage spending for goods and services • Establish more DoD-wide contracts • Office supplies, CONUS ground transportation, strategic carriers, etc. • Expand/better utilize Defense Logistics Agency’s e-Mall portal • Transform DLA • From manager of supplies to manager of suppliers

21. Business Processes Leveraging Size for Spend (Cont) • DoD should: • Centralize purchasing authority • Defense Logistics Agency or Defense Contract Management Agency • Non-standard (i.e., Service unique) purchases if fiscally justifiable • Stand up DoD-wide cost-reduction and procurement teams • Move to a common, DoD-wide electronic procurement engine • Greatly expand on-line auctions • DLA (or DCMA) • Operates and maintains • Trains Services and Agencies • Services and Agencies use

22. Business Processes Supply Chain Management • Corporate America cannot “beat” the competition alone • Strategic Alliances with their best Supply Chain organizations • Supply Chain Management brings better service at lower costs • DoD should: • Adjust mindset from Logistics to Supply Chain Management • Single Point of Contact, e.g., Defense Logistics Agency • Exercise aggressive inventory control, reduce redundant inventory • Reduce cycle times • Partner with key suppliers • Adopt a Vendor Compliance Program • Standards, certification, and training • Enforcement mechanism • Cost recovery

23. Business Processes Organizing e-Business Transformation • Corporations view IT as a strategic advantage • No longer just a service provider • CIO a full business leadership participant • IT identifies opportunities • DoD should: • Designate office responsible for e-Business transformation • Give DoD CIO full authority to: • Set and enforce DoD-wide standards and protocols • Approve Service IT programs (including funding) • Develop and implement shared services e-business model • Give Service CIO’s funding authority for all IT program aspects • Strengthen Business Initiatives Council – SDCFP link

24. Human Capital Talent & Performance Management • Corporations raising personnel performance at all levels • Performance management, training and education • DoD should: • Target “satisfactory” low performers for coaching and mentoring • Permit dual tracks for leaders/managers & technical specialists • Craft e-Learning partnerships with civilian education institutions • DoD-wide programs… not service specific • Include “Trades” and certification programs • Address “Life after the military…” to enhance retention/recruiting • Web-based DoD-wide placement assistance program • marineforlife.com as model • DoD-wide program for non-job related training and certification

25. Human Capital Efficient Employee/Customer Support • Corporations embracing Shared Service Model • Reduce redundancy, gain productivity, improve service • DoD should: • Identify DoD-wide common processes fitting Shared Service Model • Human resources, legal, health care, supply chain, IT, Finance • Aggressively web-enable • Minimize customization of COTS solutions • Develop IT solutions that enable process changes • Gain full benefit, not just smarter typewriters

26. Agenda • Background • Common Observations/Recommendations • Individual Experiences (time permitting)

27. Cisco Observations SECDEF Corporate Fellows Program • Intense organizational culture • CEO/executive leadership/managers proactively build & reinforce • Core values driven into all levels; provides focus for company • Customer focus and corporate citizenship • Change Management • Constant, timely internal communications are key • Climate built for flexibility, acceptance of frequent changes • Leveraging Technology • “Cisco Employee Connection”: Intranet an invaluable resource/tool • Internet business solutions enable huge productivity gains/efficiencies • Employee Performance Management • Frequent, scheduled, individual feedback “1:1s” ingrained in calendars • Aggressive management of bottom 10% performers • Rewards tied to productivity

28. 3M Observations SECDEF Corporate Fellows Program • Strong “outsider” CEO successfully leading change • Crystal clear goals from former GE executive • Razor-sharp accountability • “Headlong” implementation of Six Sigma driving results • Common language, established channels, measured performance • Ad hoc work groups and teams powered by electronic networking • Seamless data sharing and resource scheduling • Well-developed intranet for business admin and training • Relentless corporate pressure to cut costs of business • “Hold” business &”Win” cost savings  ”Grow” business with savings • DoD: “Hold” budget & “Optimize” mission results within given dollars

29. 3M Observations SECDEF Corporate Fellows Program • Aggressive initiatives to optimize spend for goods & services • Improved discipline, pool purchases, dual sources, competition • Saved $166M in first year; on target for $500M by 2003 • Centrally managed “Corporate Identity Strategy and Standards” • Careful orchestration of vision, key messages, values and alliances • 3M highly respected for its quality, trust and innovation • R&D reticent to cater to Govt consumer without commercial payback • Why TBD: • 3M’s commercial culture? • Fall out from past work with Government? • Heartwarming response & support for military after 9/11 • But generally ill-informed on the most basic military concepts

30. Pratt & Whitney Observations SECDEF Corporate Fellows Program • Corporate Strategy • Clear & simply stated; end state and “bridge” articulated • Competitive advantages understood • Focus on core competencies & outsourcing non-core • Growth aspirations linked to extensions of core competencies • Leverages operational capability to “change the game” • Culture • “Lean Thinking” & “ACE” permeate all facets of company • “Constant change is a way of life” • Willingness to stretch the limit • Merged companies drawn into parent philosophy

31. Pratt & Whitney Observations SECDEF Corporate Fellows Program • Architecture & Processes • Empowerment/accountability at lowest levels • Supply base consolidation • Integrated Program Deployment implementation • Execution • Education • Scorecards • UTC coordinated Leadership Councils • Corporate Analysis • McKinsey & Co. and Dupont • Electronic Work Instructions

32. Sears Logistics Services Observations Caterpillar Inc. Observations SECDEF Corporate Fellows Program • Sears & SLS undergoing significant change • Moving from silos to enterprise-wide approach • Robust change management/leadership program • Business strategy with quantifiable objectives • Customer centric • Improve productivity and returns • Drive profitable growth • Develop diverse high performance team • Global Net Exchange System (GNX) - using the internet for auctions • Purchase retail items for manufacture and resale • Sales Volume in Excess of $240M; more than $40M saved to date • Liquidate liability inventory (increased cost recovery) • Purchase supplies for home office use and remodeling • Partner with Michelin to test collaborative planning and forecasting

33. Sears Logistics Services Observations Caterpillar Inc. Observations SECDEF Corporate Fellows Program • Vendor relations • Adopted industry standards • Electronic Data Interchange (EDI) • Compliance program with standards and charge-backs • Cost recoveries in excess of $40 million • Information Technologies • Wide range of legacy systems • Building bridges vice developing new systems • Training • Continuous process • Moving to increased web-based format • Cross training associates - improves company wide perspective • Supply Chain management • Improved efficiencies (especially transportation) • Lower/controlled inventories • Improved cycle times

34. ABB GROUP Oracle Observations SECDEF Corporate Fellows Program • The $1B Savings Story confirmed by Booz-Allen • Eye-watering technology reduced tooth to tail • Efficiency up  workforce down  operating margins up • Focused to become an e-business • Servers and processes consolidation (not just e-mail) • Business practices and processes standardization • Using proprietary software • Reliance on self-service mentality • Shared services paradigm enhances productivity • e-Travel, HR, education/training, procurement • Self-service is “liberating” • Transformations successful because of leadership • Benevolent Dictator

35. AMSObservations • A company in the midst of transformation • Present business model under review • Loose conglomerate of autonomous business units less successful now • Greater Corporate involvement • New CEO appointed • An “outsider” • Focus now more on growth through acquisition • Branding Problem • Corporate image tarnished by high profile law suits • Maintaining a technically competent workforce • Forming strategic partnerships to augment

36. AMSObservations • Increased core markets competition • DoD, Federal, and State business space more attractive • Leveraging experience, customer familiarity to maintain advantage • “Business Joint” • Company’s strengths & weaknesses recognized • Developing permanent and/or interim partnership to address • Leveraging technology ensures company-wide info access • Common tools for Project Management • Robust “Best Practices” data base – no PM needs to go it alone • Consolidation of Common Services • Business Unit-specific IT/HR/Admin Support removed