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					 Secretary of Defense Corporate Fellows




                        Final Report

    Secretary of Defense
Corporate Fellowship Program

                         2006 - 2007



                                          1
                      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

                                                                            2
                                      Agenda
   Secretary of Defense Corporate Fellows



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




                                               3
                            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




                                                               4
                            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



                                                       5
                            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
         • www.ndu.edu/sdcfp/sdcfhom.html



                                                                        6
                              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

                                                                      7
                                   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




                                                                   8
                                  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




                                                                   9
       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




                                                                  10
                                       Agenda
    Secretary of Defense Corporate Fellows



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




                                                11
                        Take-Aways for DoD
    Secretary of Defense Corporate Fellows




                               Streamlining
       Internal
     Investment                               Collaboration


    Knowledge                                   Web-Enabled
   Management                                 Expertise Locator

      Small                                   Performance
Business Innovation                            Evaluations
     Research
                                Innovation


                                                              12
                    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.
                                                                                    13
                  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?

                                                                                   14
                  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
                                                                              15
                                    Collaboration
       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



                                                                                    16
                                      Collaboration
        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


                                                                                       17
                     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
                                                                               18
                     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

                                                                                  19
                 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


                                                                         20
                  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
                                                                                   21
        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



                                                                                     22
       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%




                                                                              23
            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)
                                                                                          24
             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
                                                                           25
                             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


                                                                                   26
                        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




                                                                              27
                        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

                                                                                    28
                       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


                                                                                29
                                       Agenda
    Secretary of Defense Corporate Fellows



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




                                                30
                                     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)




                                                                                   31
                         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




                                                                       32
                          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




                                                                                33
               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




                                                                             34
                           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
                                                                           35
                          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


                                                                                     36
                                          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




                                                              37
                         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




                                                                          38
                       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




                                                                               39
       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
       company
   –   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




                                                                                  40
                    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




                                                                          41
                    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.”




                                                                     42
                                          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


                                                                      43
                                     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
                                                          44
                       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



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                                              IBM
     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




                                                                             46
                                         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


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                         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




                                                                                   48
                                 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)
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                           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



                                                                                           50
                  Observations/Recommendations
         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




                                                                       51
                          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




                                                                        52
                 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




                                                                                  53
                 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
        products/schemes
    –   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
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