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					 Secretary of Defense Corporate Fellows

                        Final Report

    Secretary of Defense
Corporate Fellowship Program

                         2006 - 2007

                      2006-2007 Fellows
      Secretary of Defense Corporate Fellows

• Col Jim Slife                   Microsoft Corporation
                                  Reston, VA
• Col Doug Thomas                 Pfizer, Inc.
                                  New York, NY

• Col John Zentner                General Dynamics C4 Systems
                                  Scottsdale, AZ

• LTC(P) Dave Lee                 E.I. Du Pont de Nemours & Company, Inc.
                                  Richmond, VA

• LTC(P) Al Lee                   Caterpillar, Inc.
                                  Peoria, IL

• Lt Col Mark Baird               Deutsche Bank AG
                                  London, UK

• LtCol Bert Pridgen              IBM Business Consulting Services
                                  Fairfax, VA

• CDR Nigel Nurse                 McKinsey & Company
                                  Irvine, CA

   Secretary of Defense Corporate Fellows

• Background
• Common Findings/Recommendations
• Individual Experiences (FYI)

                            SDCFP Background
       Secretary of Defense Corporate Fellows

• 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

                            SDCFP Background
       Secretary of Defense Corporate Fellows

• 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

                            SDCFP Organization
       Secretary of Defense Corporate Fellows

• 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
   –   Net Assessment for oversight
   –   National Defense University for Admin support

                              SDCFP Sponsors
       Secretary of Defense Corporate Fellows

• 06 - Prior
   –   3M, ABB, Accenture, Agilent Technologies, American
       Management Systems, Amgen, Boeing, Caterpillar, Cisco, CNN,
       DirecTV, DuPont, Enron, FedEx, General Dynamics, Hewlett-
       Packard, Honeywell, Human Genome Sciences, IBM, Insitu
       Group, 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

• 06-07
   –   Caterpillar, Deutsche Bank, DuPont, General Dynamics, IBM,
       McKinsey, Microsoft, Pfizer

• 07-08
   –   3M, Athena Innovative Solutions, Amgen, Boeing, Cisco, CNN,
       Lockheed Martin, Oracle, SRA International

                                   SDCFP Results
        Secretary of Defense Corporate Fellows

• 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

                                  SDCFP Products
         Secretary of Defense Corporate Fellows

• 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

       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…”

                                    SecDef Remarks
                                    National Defense University
                                    31 January 2002

    Secretary of Defense Corporate Fellows

• Background
• Common Findings/Recommendations
• Individual Experiences (if required)

                        Take-Aways for DoD
    Secretary of Defense Corporate Fellows

     Investment                               Collaboration

    Knowledge                                   Web-Enabled
   Management                                 Expertise Locator

      Small                                   Performance
Business Innovation                            Evaluations

                    Knowledge Management (KM)
       Secretary of Defense Corporate Fellows

• Issue
   –   DoD concept of Knowledge Management not mature
          • DoD focuses on Information Technology or Information Sharing
          • Reinforced by Clinger-Cohen emphasis on IT
          • KM more than acquisitions and architectures
   –   No DoD enterprise-wide approach to KM
          • Individual Services/Agencies have own solutions
          • Portals, policies, tools (Harvest Mail, Athena, Plumtree, SharePoint)
          • Limited membership to Defense Knowledge Online
   –   Synthesizing „knowledge‟ across DoD is hit or miss
          •   DoD lags behind in realizing „Power of Information‟
          •   Access to information fire-walled
          •   Sharing information cumbersome
          •   Collaboration stuck in 20th Century mindset
   –   Duplication of effort is widespread
          • Policy: Public law, Executive Branch, OSD, Services, Commands, etc.
          • Research data: Agencies, Services, Repositories, lessons learned, etc.
                  Knowledge Management (KM)
       Secretary of Defense Corporate Fellows

• Industry Approach
   –   Define the concept:
         • Achieving breakthrough business performance through the synergy of
           people, processes, and technology
         • Emphasis on People and Processes
   –   Separate IT from KM
         • IT (tools) supports KM (business practice)
         • Chief Knowledge Officer role as strategist
         • Chief Information Officer a „builder‟; Chief Knowledge Officer a „thinker‟
   –   Organize resources: People, Data, Experiences
         • Common access point for company database
         • One portal….one starting point….common front end
   –   Place resources in context: how do humans relate to it?
         •   Metadata standards and expectations
         •   Automated taxonomy generation
         •   Sociologists and human centered design
         •   TiVo knows what I like…why not my office network?

                  Knowledge Management (KM)
      Secretary of Defense Corporate Fellows

• Recommendations
  –   Define Knowledge Management for DoD
         • Establish focus on human sense-making

  –   Implement KM practices
         • Start small, but coordinate effort across DoD
         • Common portal using existing IT tools to access information

  –   Move faster!
         • DoD first identified need for Knowledge Management in 1993
              –   OUSD(AT&L) working with Library of Congress and UMASS
         • DoD (CIO) 4 May 07 “Information Sharing Strategy” policy a start
              –   Doesn‟t focus enough on human element

                       DATA is the result of sensing/measuring
                INFORMATION is data placed in context of the environment
              KNOWLEDGE is information placed in context of decision-making
       Secretary of Defense Corporate Fellows

• Issue
   –   Collaboration in DoD disciplined within defined parameters
          • Lacks agility and flexibility to leverage member innovation
   –   Current generation is “web-enabled”
   –   DOD portals/web sites not always the forum of choice
   –   Licensed software technology not fully leveraged

• Industry Approach
   –   Create tools, environment, and policies
          • Encourage timely exchange of ideas to generate next “good idea”
          • E-mail, IM, enhanced directories, Blogs, Wikis, open development, etc
   –   Blog (weB LOG)
          •   Web-accessible “posting” w/ability to comment; an editorial
          •   Focused around communities of interest
          •   Cuts back on “spam” e-mail; especially with “push” feeds
          •   Leaders/Subject Matter Experts (SME) use to communicate broadly

        Secretary of Defense Corporate Fellows

• Industry Approach (cont)
   –   Wiki: Hawaiian for “fast”
         • Web-based collaborative authoring tool
         • Theory: many authors better than a single smart author
         • Used to enable continual updates to a web-based document
         • Potential uses
               –   IT systems user documentation (hints, shortcuts, workarounds)
               –   Sharing tactics/techniques/procedures (community best practices)
               –   Document re-writes/edits (travel/time/cost saver for conferences)

• Recommendations
   –   Implement information technologies policy/use changes
         •   Across operational and business domains
         •   Promote an agile and flexible collaboration environment
         •   Maintain information security and information assurance disciplines
         •   Professional standards of conduct
   –   Exploit already licensed user interface enabling technology

                     Web-Enabled Expertise Locator
       Secretary of Defense Corporate Fellows

• Issue
   –   Finding topical experts within DoD
          • Manpower intensive; limited to local knowledge or “who you know”
   –   DoD lacking a useful, multi-functional contact tool
   –   Global Address Listings (GAL) stove-piped by service, agency

• Industry Approach
   –   GAL more than just names and addresses
   –   Covers entire enterprise
   –   Integrated to enable collaboration
   –   Enhanced with hot links
          •   Instant messaging (IM)
          •   Voice over Internet Protocol (VOIP) telephony
          •   Subject matter communities
          •   Functional areas
          •   Publications
          •   Cross community discussions; related Blog‟s and Wiki‟s
                     Web-Enabled Expertise Locator
       Secretary of Defense Corporate Fellows

• Industry Approach (Cont)
   –   Meta-data applications
         •   Who are Subject Matter Experts?
         •   Who‟s engaged in cutting edge discussions of technology, strategy, etc.
         •   When‟s the best time to contact?
         •   What‟s the preferred forum?

• Recommendations
   –   Accelerate/enhance a single DoD-wide GAL
         • Enables quick, pertinent searches
         • Encourages collaboration across Services and agencies
   –   Establish policies that promote contacts within DoD
         • Between Communities of Expertise (COE)
         • Across Services/agencies
   –   Merge communication and information technologies
         • Enhance the tools and leverage the network

                 Internal Business Investments
       Secretary of Defense Corporate Fellows

• Issue
   –   Lean/Six Sigma (LSS) seen as a fad, not culture change
         • No wide-scale training
         • Uneven rigor in demanding quantified costs and savings
   –   Policies implemented without evaluating workflow costs
         • Unfunded mandates for field commanders
   –   IT spending viewed as a “cost,” not “investment”
         • No rate of return required to invest in IT

• Industry Approach
   –   Leadership buy-in essential
         • More than speeches and articles
         • Corporate systems changed to reflect desired culture change
         • Promotions/good assignments tied to participation & success
   –   New policies have workflow offset or accepted as a plus-up

                  Internal Business Investments
        Secretary of Defense Corporate Fellows

• Industry Approach (cont)
   –   Accurate cost accounting and estimation system
         • What resources go “in” to get desired output?
         • What savings/avoided costs are estimated with re-engineering?
         • What resources go “in” to get desired output after changes?
   –   Repeatable/measurable process required
         • Before applying LSS, IT changes
         • LSS and IT can not enable a process that is different every time
         • “Good business processes get better, bad ones get worse with IT”
                                                                    - Bill Gates

• Recommendations
   –   Make systemic changes to support culture shift
   –   Require workflow & cost analysis for new policies, regulations
   –   Continue business transformation to more accurate costing
   –   Focus on, publicize cases with re-use potential
   –   Demand process discipline before investing in re-engineering
        Small Business Innovation Research (SBIR)
       Secretary of Defense Corporate Fellows

• Issue
   –   Corporations not leveraged enough within SBIR program
         • SBIR mandated by Congress; ~ 4% of R&D allocated
         • Small technology firms with less than 500 employees
              –   54.8 % of all scientists and engineers in US industrial R&D, but
              –   Only 4.3 % of government R&D dollars
         • Commercialization Pilot Program (CPP) offers great potential

• Industry Approach
   –   Program Phases
         • I – Feasibility Study
         • II – Development
         • III – Commercialization
   –   Five major defense contractors have established SBIR offices
         • Leverages the benefits of fast tracking a SBIR company

       Small Business Innovation Research (SBIR)
      Secretary of Defense Corporate Fellows

• Recommendations

  –   Ensure CPP fully understood by companies with large R&D

  –   Improve process to communicate SBIR program requirements
        • Web alone not the answer

  –   Assist communicating successful commercialization research
        • Web alone not the answer

  –   Fast Track SBIR programs into Phase II
        • Provides DoD with a partner having the resources to commercialize
        • Increases R&D funding for projects by 25%

            Innovation through Prize Competitions
           Secretary of Defense Corporate Fellows

• Issues
   –   Military increasingly depends on immature complex technologies
         • No assurance successful major weapons systems program goals will be met
   –   FY 2001 National Defense Authorization Act
         • One third of operational ground combat vehicles unmanned by 2015
   –   Advanced technology prize competitions are valuable tools
         • Accelerate development of complex and potentially disruptive technologies
• Approaches
   –   X Prizes
         • Ansari - civilian craft carrying three person load to 100 KM altitude ($10M)
         • Archon - civilian decoding of 100 human genomes in 10 days ($10M)
         • LLC - civilian craft with flight performance equal to a lunar lander ($350K)
   –   DARPA Grand Challenges
         • Fastest autonomous vehicle completing challenging road course ($1M-$2M))
         • Safest autonomous operations during multi-mission, urban driving ($2M)
   –   NASA Centennial Challenges (7)
         • Wireless power transmission ($200K)
         • Super-strong tethers for Space Elevators ($500k)
             Innovation through Prize Competitions
        Secretary of Defense Corporate Fellows

• Results and Benefits
   –   Diverse mix of disciplines and nontraditional partners
   –   Leverages basic and applied research with „real world‟ applications
   –   Develop synergies that foster a new way of thinking
   –   Not constrained by requirements found in Request for Proposals (RFP)
   –   Allows multiple solutions to the same technical challenge
   –   A fraction of total costs (investment is 10 to 40 times prize value)
   –   Competitors seek near-term economic opportunities
   –   Win-win for defense and commercial sectors
   –   Engage public, media, academia, industry, diverse enthusiasts
         • Fully exploit prize culture characteristics
   –   Leverages commercial efficiencies
   –   Even failure provides an assessment of technology maturity levels

• Recommendations
   –   Use on complex, slowly developing technologies
         • High-risk/reward payoff
         • Potential dual use or commercial application
   –   Complement research grants and contracts; not replace them
   –   Engage media, academia, industry, diverse enthusiasts
                             Streamlining Functions
        Secretary of Defense Corporate Fellows

• Issue
   –   DoD „business‟ operations stovepiped, with many redundancies
          • Fiscal pressure, high operations costs driving need for streamlining

• Industry Approach
   –   Share price pressure/competition driving companies to lower costs
   –   Consolidation/centralization of redundant or duplicative processes
          • Eliminate silos
                –   Created by aggressive global growth, mergers, acquisitions
          • Reduce complexity, time to implement, suboptimal savings
                –   Resulting from decentralized or ad hoc efforts
   –   Successful initiatives with maximum impact,
          •   Comprehensive approach with management buy-in and follow through
          •   Centralized governance process
          •   Centrally managed umbrella project office
          •   Highly structured tollgate/milestone processes

                        Streamlining Functions
      Secretary of Defense Corporate Fellows

• Recommendations
  –   Continue streamlining review/effort within DoD
        • Not just OSD; across Joint Staff and Services
        • Eliminate stovepipes and redundant „business‟ operations
             – Support, administrative, budgeting activities

        • Combine current myriad of consolidation efforts
             –   AF claims processing, USMC administrative functions, USA finance

  –   Overarching consolidation effort for DoD business practices
        • British Ministry of Defence model could provide examples
        • Deutsche Bank‟s governance model would provide benefit
        • Take advantage of CSIS „Beyond Goldwater-Nichols‟ effort

                        Performance Evaluations
        Secretary of Defense Corporate Fellows

• Issues
   –   Performance evaluations not focused on three basic questions
         • What am I doing well?
         • What am I not doing well?
         • How do I improve?
   –   What DoD does today
         • Systems designed to promote the best and brightest (All)
         • Identify individual objectives for period of performance (Army, AF, MC)
         • Multi-purpose systems covering counselling &objectives, promotion, and
           performance (AF)
         • Mix of when reports are completed and by whom (All)
   –   Where DoD misses the mark
         •   Objectives programs are hit or miss
         •   Systems sub-optimized to improve all levels of personnel performance
         •   Evaluations usually linked to a single evaluator
         •   Supplemental programs (objectives, counselling) have little accountability

                       Performance Evaluations
       Secretary of Defense Corporate Fellows

• Industry Approach
   –   360 degree feedback
   –   Formal feedback on areas for improvement
          • Feedback on ways to improve
              –  Required follow-up with follow-on reports
          • Use of corporate-wide web-based IT tool
              –  360 degree feedback and performance evaluation e-forms
   –   More than one review during the year
          • Objectives, mid-term corrections, final evaluation
   –   Alignment of individual objectives/goals
          • Clearly tied to unit, division, company level objectives/missions
• Recommendations
   –   Formalize improvement feedback with emphasis on accountability
   –   Implement 360 degree “no regret” feedback
   –   More objective formats
          • Top three things done well and three areas for improvement

    Secretary of Defense Corporate Fellows

• Background
• Common Findings/Recommendations
• Individual Experiences (FYI)

                                     Microsoft Corp
       Secretary of Defense Corporate Fellows

• World‟s largest software company
   –   Employees                     71K world-wide
   –   Market capitalization         $293.5B (no debt)
   –   2006 sales                    $45.4B
   –   Divisions
         •   Business (Office, Exchange, Dynamics, Project, etc.)
         •   Server & Tools (Windows/SLQ Server, security/developer tools, etc.)
         •   Online (Messenger, MSN, Mail, Spaces)
         •   Client (Windows)
         •   Entertainment & Devices (Mobile & Embedded Devices, Xbox, etc.)

• Fellowship Placement: US Public Sector Sales & Marketing
   –   Business development
         • K-12 Education; Federal, State, Local Government; Industry
   –   Illinois State Police intelligence fusion center public-private alliance
   –   Network-Centric Operations Industry Consortium (NCOIC)

                         Observations (Microsoft)
        Secretary of Defense Corporate Fellows

• Technology can solve technology, not business, problems
   –   Broken/inefficient business processes must be fixed first
         • Before applying technology to streamline systems

• A product company at its heart
   –   Not a sales or services company
   –   Product stack largely IT
         • Not many off-the-shelf business solutions
         • Much already licensed by DOD
   –   Partners can/do build business solutions on the product stack
         • Fraction of the cost of “Systems Integrators”
         • Challenge to DOD…fragmented partner base

                          Observations (Microsoft)
        Secretary of Defense Corporate Fellows

•   Most customers do not get full software licensing value
    –   Desirable features built into products remain unused
         •    Collaboration tools
         •    RPC over HTTP
    –   Unused training vouchers
         •    Office training
    –   Off-the-shelf solutions to IT problems exist, available
         •    Marginal cost due to existing enterprise agreements not pursued
                 Softricity (application virtualization)

•   Why? (a working hypothesis)
    –   Microsoft caters to the “CIO” function
         •    Solving CIO problems, not COO problems
    –   DOD IT assets focus on solving CIO problems, not COO problems
    –   Solving COO problems turns into one-off acquisition programs

               General Dynamics C4 Systems
      Secretary of Defense Corporate Fellows

• General Dynamics a major US Defense Contractor
  –   Employees       82K world-wide
  –   2005 sales      $21.2B
  –   Business Sectors
        •   Combat Systems(Land systems, ordnance, armament systems)
        •   Aerospace           (Gulfstream Aircraft)
        •   Marine Systems (Electric Boat, Bath Iron Works)
        •   Info Systems/Tech   (C4 Systems, Advanced Info Systems, Info Tech)

• Fellowship Placement: C4 Systems
  –   Rotation through three business units
  –   Participation in strategic-level business unit processes
  –   Assesses division decision-making processes
  –   Engage senior support staff on business-wide programs

                           Observations (GDC4S)
         Secretary of Defense Corporate Fellows

• Communicating with government problematic
   –   Significant time/effort/money spent trying to predict
         • Timelines, contract scope, requirements, etc
   –   Perception that FARs prevent necessary communication
         • Especially between RFI completion and RFP due date
   –   Perception that incumbent vendors possess advantages
         • Most knowledge of requirements and contract specifics
         • Lost bid outbriefs cite “lack of understanding”
   –   More (govt) analysis makes program cost/schedule harder to achieve
         • Requirements creep

• Six Sigma processes fully integrated
   –   Long history going back to time as unit of Motorola
   –   Each division incorporates Six Sigma concepts as matter of course
         • No separate Six Sigma office….everyone just does it
         • Focus on saving money and improving product…customer focus

• Land Warrior Innovation Center (The EDGE)
   –   Systems Integration Lab open to all industry/government/academics
   –   Opportunity to minimize future tech insertion by all vendors
                          Observations (GDC4S)
        Secretary of Defense Corporate Fellows

• Organizational change a current issue
   –   Company growth relies upon acquisition of related companies
   –   Change in organization necessary, but difficult
         • May have some similarities to DoD organizational changes
         • Much clearer focus on “why” change is necessary (profit, efficiency)

• Intellectual capital the most significant company strength
   –   Engineering talent pool the competitive advantage
   –   No apparent shortage of hires

• Personnel practices reward employee‟s strengths
   –   Emphasis on developing individual talents
         • Weaknesses can be outsourced!
   –   Experience depth more valued than breadth
   –   Greater sophistication of solutions the result
   –   Lesson for military professional development
         • Valuable expertise in many fields lost
               Systems engineering, intelligence analysis, various support fields

                                          Pfizer, Inc.
       Secretary of Defense Corporate Fellows

• Research Based, Global Pharmaceutical Company
   –   Employees:             ~106,000 in over 90 countries
   –   Market Capitalization  $190B
   –   2006 Revenues          $48.3B
   –   2006 R&D Spending      $7.6 B
   –   Main business segments
         • Health Care (Prescription Drugs)
         • Animal Health

• Fellowship Placement
   –   Global Security
         • Senior Manager
         • Strategic Planning

                         Observations (Pfizer)
        Secretary of Defense Corporate Fellows

• Company in transition with numerous challenges
   –   Several major revenue generating drugs off patent in next 5 – 7 years
   –   Organic R&D pipe line failed to produce new major medication
         • Next blockbuster drug (~$20B per yr) development halted
   –   Failure to properly integrate recent large acquisitions
         • Efficiencies not realized; inefficiencies created
   –   Wall Street cautious
         • 50% drop in stock price over last six years
   –   New CEO & Chairman of the Board

• New CEO‟s vision
   –   “One Pfizer”
   –   Focus on core competency – research
   –   More agile
   –   Strategic acquisitions

                       Observations (Pfizer)
       Secretary of Defense Corporate Fellows

• The way ahead
  –   De-layering
        • Reduce layers of management (CEO to lowest level) from 14 to 8
        • Increase manager‟s median span of control to seven employees
  –   Centralized services
        • Consolidate operating division service providers (HR, IT, Finance)
  –   Reduce 2007-2008 operating expenses by $2B
        • Sales force reductions in US and Europe
        • Site Closures
        • Total employee reduction ~10K (9.5%)

• Takeaways for DoD
  –   De-layering business functions

       E. I. du Pont de Nemours & Company
       Secretary of Defense Corporate Fellows

• Science company for more than 200 years
   –   Employees               60K in 75 countries
   –   2005 Revenue     $28.4B
   –   Five “Platforms”
        •   Agriculture & Nutrition
        •   Coatings & Colors,
        •   Electronic and Communication Tech
        •   Performance Material
        •   Safety and Protection

• Corporate Strategy
   –   Launch “The New DuPont” transformation to a sustainable growth
   –   Reinforce Core Values
        • Safety, Environmental Stewardship, Respect for People, Ethical Values
   –   Grow revenue at more than $1B annually
• Assignment: Personal Protection in Safety and Protection Platform

                    Observations (DuPont)
        Secretary of Defense Corporate Fellows

• Employees dedicated, hard working, honest, loyal
   –   Most employees stay for full career
   –   Sense of duty within the Safety Platform
         • We help save lives”
         • Scientists who want to achieve the best they can

• Changing retirement program to follow other companies
   –   401K only; no medical insurance upon retirement
   –   Assumes a national healthcare program in the future

• Bold transformation to ensure aggressive sustainable growth
   –   Standardizing systems and processes
         • Leveraging scope of “One DuPont”
         • Work to do in communicating this vision; making it a reality
         • CEO communicates through e-mail, town hall meetings

                    Observations (DuPont)
       Secretary of Defense Corporate Fellows

• Constant focus on safety
   –   Every meeting begins with a safety discussion
   –   Required visitor safety briefings
         • What to do in an emergency before entering any facility
   –   “Goal is Zero” placards everywhere!
   –   Benchmark for Industry
         • Consultants to numerous corporations
         • CAT CEO: “We want to be like DuPont for safety.”

                                          Caterpillar, Inc.
     Secretary of Defense Corporate Fellows

•   World‟s largest manufacturer of construction/mining equipment,
    diesel/natural gas engines, industrial gas turbines
       –   Employees 90,000+ in 40 countries
       –   Sales       500+ products in 200 countries (52% foreign)
       –   2006 Revenue        $40B
       –   #1 Dow stockholder return performer for last five years

•   Enablers
       –   Dealers
       –   CAT Logistics
       –   CAT Financial
       –   CAT Reman

•   Assignment: Corporate Headquarters
       –   New Product Introduction/Product Quality
            •   Strategic Area of Improvement
       –   Beyond 21st Century Working Group
       –   Project, Program, Portfolio Management Benchmarking Study
       –   Project Management Synergy Working Group
       –   Six Sigma

                                     Observations (CAT)
        Secretary of Defense Corporate Fellows

• Business model
   –   Small Executive Group
   –   Autonomous Business Units(BU)
   –   VPs serve as CEOs of BU

• Clearly aligned vision and strategy
   –   5 Year Plans
   –   Strategic Goals
   –   Critical Success Factors
   –   Strategic Areas of Improvement
   –   Driven by Values in Action
   –   Top to bottom alignment throughout

• The Power Behind the Progress
   –   People
   –   Enablers

• Customer Focused and Value Driven
                       Observations (CAT)
        Secretary of Defense Corporate Fellows

•   Legacy of innovation
    –      $4M+ daily investment in R&D ($1.08B in 2005)
    –      Hundreds of Ph.D. Scientists
    –      > 2500 patents in the past 5 years

•   Relentless quest for perfection – Encoding 6 Sigma

•   Revitalized New Product Introduction process
    –      Move the Mountain
    –      Quality improvements
    –      Velocity improvements
    –      Resource Management improvements

•   Strong support for sustainable development

•   <1% of total sales to the US Government

     Secretary of Defense Corporate Fellows

•   World‟s largest IT Company
      –    Hardware, software, services
      –    Employees            366,000+ in 175+ countries
      –    2006 revenue         $91.4B
           •   51% from Global Services
      –    2006 earnings/share $6.06 ($2.88 in 2004)

•   Assignment: Federal Sector, Global Business Services
      –    Application Innovation Services
           •   Configuration/Risk Manager, Net-Centric Enterprise Services (NCES)
           •   Collaboration Service to Defense Information Service Agency (DISA)
      –    Navy Account
           •   Manager, Naval Expeditionary Combat Command (NECC)
           •   Naval Expeditionary Combat Enterprise (NECE)
      –    DOD Account, Business Operations

                                         Observations (IBM)
       Secretary of Defense Corporate Fellows

• Business and strategy transformed
   –   Escape commoditization of IT (hardware and software)
   –   Use lessons learned to recreate services/consulting group

• Federal Practice divestiture/acquirement
   –   PricewaterhouseCoopers acquisition
         • Position in Federal/DoD Sectors re-established

• Innovation – the intersection of invention and insight
   –   Invention
         • 14 years as #1 in patent generation
   –   Insight
         • Focus on application of technology rather than technology itself

• Harness innovation through culture of collaboration
   –   Tools to bring cultural seams together
         •   W3 On Demand Workplace – IBM‟s intranet
         •   SameTime – Instant Messaging, sharing for video, audio, documents
         •   Think Place - Repository of IBM practices, lessons learned
         •   Blue Pages – Worldwide employee information

                         Observations (IBM)
        Secretary of Defense Corporate Fellows

• Internal “commodities” identified
   –   HR
         • Onboarding process
         • Enterprise Resource Planning (ERP) Systems
                – Software to unify disparate business process systems
                – Wonderfully efficient, until entering from non-std entry point
   –   Travel
         • Bookings
         • Reimbursements
   –   Work spaces

• Open Architecture
   –   Eliminates single supplier dependencies

• Service oriented architecture
   –   Replacing hardware/software architecture
   –   Middleware ties multi-supplier software together
   –   NCES Collaboration tool is first DoD purchase

                                 McKinsey & Company
          Secretary of Defense Corporate Fellows

•   Strategic level management consulting
      –   Consultants           ~8,600 in 45 countries
      –   83 Offices
           •   No corporate HQ (Senior Director ~ CEO)
      –   Limited Liability Partnership; no public financials
      –   Most sought after job in the World by MBA graduates

•   Consulting model a matrix
      –   Functional practices (Tech, Operations, Finance, Strategy, etc)
      –   Industry practices (Energy, Media, Insurance, Retail, etc)

•   Assignment: Production Systems Design Center
      –   Part of Operations Practice
      –   Primarily Lean transformation programs
           • Strong adherence to Toyota Production System (TPS)
      –   Two Year Apprenticeship
           • Most new hires have Masters Degrees
           • 8 of 56 ex-military (Navy Nuclear program)
                           Observations (McKinsey)
         Secretary of Defense Corporate Fellows

• Toyota Production System (Lean)
   –   Text book approach
         • Just in Time delivery
         • Kaizen (Continuous improvement) events
         • Eight Wastes
              -   Overproduction, waiting, unnecessary transportation, overprocessing,
              -   excess inventory, unnecessary movement, defects, unused employee creativity
         • Value Stream Mapping - Value added v. non value added
         • 5S - Sift, sort, sweep, standardize, sustain
         • Takt time - Total available time / Customer demand
         • Overall Equipment Effectiveness (OEE)
   –   Implementation reality more Tool Box than Culture Change
• Performance Management
   –   Up or out, seven level career path
         • Step up ~ every two years
         • Average time at the firm is 2-3 years
   –   Six month reviews
         • Actual performance and improvement areas stressed
   –   Feedback at the end of every engagement

         Secretary of Defense Corporate Fellows

• McKinsey Way
    –   Exacting standards
          • Think Cell (PowerPoint Add-in) for documentation
    –   Teams up and running in short period of time

• Leadership Development is apprenticeship approach
    –   DoD second to none

• Priorities
    –   Client first, consultants second

• Recommendations for DoD
    –   Central Lessons Learned Database for Lean and Six Sigma projects
    –   Standardize mandatory reporting with tool like Think Cell
    –   Update Fitness Report Evaluation System
          • Emphasize professional accountability
          • Emphasize performance improvement areas

                          Deutsche Bank
       Secretary of Defense Corporate Fellows

• Leading Global Investment Bank
   –   Employees             68K employees in 73 countries
   –   Market Capitalization $71B
   –   2005 Revenue          $33.54B
   –   Major Business Sectors
         • Corporate & Investment Banking
         • Private Clients and Asset Management
• Major cultural change underway
   –   Traditional German branch bank to major global investment bank

• Fellowship in Risk and Capital Management unit
   –   Corporate Security, Business Continuity, Organizational Risk Mgmt
         • Project/Process Risk Analytics
         • Management information systems
         • Talent management/development/succession planning
   –   Consolidation, outsourcing initiatives
   –   On-line procurement portal

                 Observations (Deutsche Bank)
        Secretary of Defense Corporate Fellows

• Outstanding approach to performance management
   –   Supervisor/employee conference prior to rating period mandatory
         • Discuss, document, agree to goals
         • Must link individual goals to organization mission to DB core values
              –  Performance, Trust, Teamwork, Innovation, Client Focus
   –   Quarterly performance reviews to monitor/adjust (scaled 1 to 5)

• Emphasis areas for training leaders/managers
   –   Technical “hard skills
   –   Leadership & Management “soft skills”
   –   Diplomacy “soft skills”

• Aggressive consolidation driving efficiency improvements
   –   Many „like functions‟ across organizational silos
   –   Consolidate and outsource/offshore where it makes sense
   –   Robust, structured process defined as guide

                 Observations (Deutsche Bank)
        Secretary of Defense Corporate Fellows

• „Near Miss‟ risk analysis an effective tool
    –   Increases negative events prediction/prevention
    –   A reactive measure that complements/feeds std proactive measures
          • Internal controls, self assessments, key risk indicators
    –   Near miss incident data gathered in central system
    –   Actual loss „signatures‟ correlated to near misses
          • Used as predicative tool

• Struggling with process definition
    –   Intense competition drives continuous innovation in
    –   Mid- and back-office functions struggling to keep up
    –   Basel II accords require quantification of risk throughout processes
          • Drives economic capital reserve levels
    –   Represents significant vulnerability

• On-line “Procure to Pay” portal is outstanding
    –   Non-complex purchases (commodity, minor services)
    –   Single, integrated process from user order to payment