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Secretary of Defense Corporate Fellows Final Report Secretary of Defense Corporate Fellowship Program 2004 - 2005.

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1 Secretary of Defense Corporate Fellows Final Report Secretary of Defense Corporate Fellowship Program 2004 - 2005

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

3 Secretary of Defense Corporate Fellows 3 SDCFP Background SECDEF concerns for future Service leaders -Open to organizational and operational change -Recognize opportunities made possible by info tech -Appreciate resulting revolutionary changes underway Affecting society and business now Affecting culture and operations of DoD in future Businesses outside DoD successful in: -Adapting to changing global environment -Exploiting information revolution -Structural reshaping/reorganizing -Developing innovative processes

4 Secretary of Defense Corporate Fellows 4 SDCFP Organization Two officers from each Service -High flag/general officer potential -O-6 or O-5 -Senior Service College credit Group Education -Current political/military issues;leading edge technologies -Meetings with senior DoD officials, business executives, Members of Congress, the press, former sponsors, alumni -Graduate business school executive education Eleven months at Sponsoring Company Permanent Staff -SDCFP Director, Admin Assistant -Net Assessment for oversight -National Defense University for Admin support

5 Secretary of Defense Corporate Fellows 5 SDCFP Sponsors 1995 - 2004 – 3M, ABB, Accenture, Agilent Technologies, American Management Systems, Amgen, Boeing, Cisco, DirecTV, DuPont, Enron, FedEx, General Dynamics, Hewlett-Packard, Human Genome Sciences, IBM, Lockheed Martin, Loral, McDonnell Douglas, McKinsey & Co., Merck, Microsoft, Mobil, Netscape, Northrop Grumman, Oracle, Pfizer, PricewaterhouseCoopers, Raytheon, Sarnoff, Sears, Southern Company, Sun Microsystems, United Technologies 2004-2005 – 3M, Caterpillar, Cisco, Hewlett-Packard, Honeywell, Lockheed Martin, SRA International 2005 – 2006 – FedEx, Insitu Group, Johnson & Johnson, Raytheon, Southern Company, Sun, Symbol Technologies, United Technologies

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

7 Secretary of Defense Corporate Fellows 7 SDCFP Products Build a cadre of future leaders who: – Understand more than the profession of arms – Understand adaptive and innovative business culture – Recognize organizational and operational opportunities – Understand skills required to implement change – Will motivate innovative changes throughout career Report and Briefings directly to SecDef, others – Business insights relevant to DoD culture/operations – Recommended process/organization changes

8 Secretary of Defense Corporate Fellows “And we must transform not only our own forces, but also the department that serves them by encouraging a culture of creativity and intelligent risk taking. We need to promote a more entrepreneurial approach to developing military capabilities, one that encourages people—all people—to be more proactive and not reactive, to behave somewhat less like bureaucrats and more like venture capitalists…” Secretary of Defense Donald Rumsfeld Remarks to The National Defense University 31 January 2002

9 Secretary of Defense Corporate Fellows 9 2004 - 2005 Fellows Col John ClarkLockheed Martin Corporation Dallas, TX Col Scott Vander Hamm3M Company St. Paul, MN CAPT Mark RichHoneywell International, Inc. Columbia, MD LTC(P) Dennis Slagter SRA International, Inc. Fairfax, VA Col (S) Ed WilsonCisco Systems, Inc. San Jose, CA CDR Mike MurphyHewlett-Packard Company Reston, VA Lt Col Howard ParkerCaterpillar, Inc. Peoria, IL

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

11 Secretary of Defense Corporate Fellows 11 Two Distinct Cultures… Corporate America Profit and growth Market centric/customer focused Cost conscious (profit/loss) culture “Street”/competition drive urgency Ruthless advocate for efficiency Continuously reinventing tech base DoD Mission accomplishment Service centric Spend culture Politics/budget/ops drive urgency Tenacious advocate for warfighter Develop in blocks and spirals...with Best Practices to Share

12 Secretary of Defense Corporate Fellows 12 Framework Over time, the most successful organizations achieve world-class results across key areas in an integrated manner Technology ENABLING TECHNOLOGIES * Framework adapted from What Really Works, Joyce, Nohria & Roberson EXECUTION Consistently meet expectations Empower workforce Focus on continuous improvement ORGANIZATION & CULTURE Fast, flat, flexible organizational structures Performance & innovation oriented Sharply communicated company values TALENT Recruit, retain, develop top talent World-class training & education Reward top performers STRATEGY Clear, focused, growth-centric Anticipate change (competitive landscape) Core vs unrelated business areas

13 Secretary of Defense Corporate Fellows 13 EXECUTION STRATEGY ORGANIZATION & CULTURE TALENT ENABLING TECHNOLOGIES * Adapted from What Really Works Where Great Companies Put their Emphasis

14 Secretary of Defense Corporate Fellows 14 Strategy DoD Relevance – Increasing customer value in the requirements process – Clarifying and focusing the budget cycle – Anticipating changes in the security environment – Increasing returns on R&D investments Recommendations -Apply marketing methodologies to requirements development -Manage anticipated changes in the security environment -Review and manage “core” capabilities

15 Secretary of Defense Corporate Fellows 15 Strategy Observations – Why Marketing? Not selling – deciding what to sell to whom Define the business, segment the market, ID target segment, develop value proposition and go-to-market plan Requires & enables true understanding of the customer & competition – Industry tools get at “customer value” Feature/Benefit/Value relationship Voice of the Customer, Employee Satisfaction, Customer Strategic Review, data analysis tools, application methodology DoD should – Apply Marketing methodology to Service Requirements processes Understand stakeholder relationships, interdependencies better Increased Requirements specifications fidelity Increase Requirements process value Promote transparency between Services Apply Marketing Methodologies to Requirements Development

16 Secretary of Defense Corporate Fellows 16 Observations – Corporate mindset to be alert for market transitions – Change usually begins on the edges – Stable investment streams important – Industry moving to outcome based research investment process Interdependent vice individual projects prioritized Business outcome driven ~ effects based decision-making Industries with similar decision criteria benchmarked DoD should – Accommodate DoD’s broader focus, different time horizon – Increase Return on (R & D) Investment (ROI) Stay committed to & stabilize long-term R&D funding Apply Marketing processes to ACTD process Apply Six Sigma tools & methodology to R&D investment decision processes Benchmark industry leaders Strategy Manage Anticipated Changes in the Security Environment

17 Secretary of Defense Corporate Fellows 17 Strategy Review & Manage “Core” Capabilities Observations – Corporations constantly adjust to changing environment Leverage transition periods for competitive advantage – In-house, outsource, or out-task decisions Core or context (relative to business) gap evaluation Mission critical or non-mission critical evaluation DoD should – Review Command/Service/Agency capabilities Assess processes - core vs context – Apply Build/Partner/Acquire decision to core/context evaluation Build to close gaps in core mission critical capabilities Acquire (outsource) non-core where capability exists affordably Partner (out-task) where gaps are common or cost-prohibitive

18 Secretary of Defense Corporate Fellows 18 EXECUTION STRATEGY ORGANIZATION & CULTURE TALENT ENABLING TECHNOLOGIES * Adapted from What Really Works Where Great Companies Put their Emphasis

19 Secretary of Defense Corporate Fellows 19 Execution DoD Relevance -Flawless execution = mission success -Supporting troops, meeting needs of combatant commanders -Quest for excellence in all areas – Eliminating waste frees dollars for critical priorities Recommendations - Improve Information and Supply Chain Management – Adjust Acquisition Reform – Implement process improvement methodology

20 Secretary of Defense Corporate Fellows 20 Observations -Ops, Info Management, Supply Chain Management converging IT no longer a “support tool” - Information is the business Supply Chain Management vital to operational success DoD should -Push convergence - Navy N6 (C4I)/N7(Requirements) good example -Strengthen DoD CIO’s role -DoD-wide IT architecture stds that encompass entire operational scope -Continue Supply Chain improvement implementation Cross service collaboration of best practices Execution Improve Info and Supply Chain Management

21 Secretary of Defense Corporate Fellows 21 Execution Adjust Acquisition Reform Observations -Corporate America believes Acquisition Reform on track, but… Pendulum has swung too far in some areas DoD should -Make Quality Assurance part of the contract; not assumed Mandate First Article Inspections and physical configuration audits -Both sides determine what is “good enough” Larger role for DCMA in Tier II/III risk management and quality control -Better quality from Subs/Suppliers to Primes -Require subcontractor, supplier management plan from Prime -Continue to foster closer partnerships with industry

22 Secretary of Defense Corporate Fellows 22 Execution Implement Process Improvement Methodology Observations – Corporations adapt to change in disciplined manner Common language, common metrics 4-6 year commitment required for organizational DNA change – Top level support imperative – Change driven by change agent teams – Annual budget savings of 2–3 % DoD should -Develop / implement a formal process improvement methodology Dedicated fully resourced effort Eliminate inefficiencies and improve process quality Teach in leadership training and at all levels of PME

23 Secretary of Defense Corporate Fellows 23 EXECUTION STRATEGY ORGANIZATION & CULTURE TALENT ENABLING TECHNOLOGIES * Adapted from What Really Works Where Great Companies Put their Emphasis

24 Secretary of Defense Corporate Fellows 24 Talent DoD Relevance – DoD OPTEMPO can stress service-level manning – DoD must compete for talent with private industry – DoD’s NSPS applies some of private industry’s best practices – Private Industry focus on execution is the “bottom line” Recommendations -Increase leader stability and continuity -Continue focus on leader development -Develop management skills as a core competency

25 Secretary of Defense Corporate Fellows 25 Observations -CEOs emphasize importance of senior leader commitment to change -Leader continuity is key to winning business strategies of: Agility and adapting to market place changes Creating a culture for change and transformation Constantly communicating organization’s values and vision DoD Should -Increase tour lengths for key leaders (military & civilian) -Recognize and reward all players on the team (line & staff) equally -Drive performance improvement for GS ranks Institutionalize incentives for top performers Improve or out Talent Increase Leader Stability and Continuity

26 Secretary of Defense Corporate Fellows 26 Observations -Emerging focus in Industry -Industry lacks “up or out” pressures -Industry constrained by individual mobility options -Team based and collaborative across boundaries -Often involves mentoring by senior leadership (imprints subordinates) DoD should -Partner with Industry for leadership exchanges at junior officer levels -Leverage early successes from NSPS across the Services quickly -Develop short-duration leader training programs -Continue leader development training investment; even during GWOT Talent Continue Focus on Leader Development “We needed to excite the talented middle in our ranks” – 3M Executive

27 Secretary of Defense Corporate Fellows 27 Observations -Corporations emphasize both leadership & management -Flawless execution is the key to achieving “bottom line” growth -Metrics, process improvement, instrumentation are best practices -DoD emphasizes leadership over management skills…rightly but balance may help DoD should -Recognize that both skill sets are complementary -Incorporate executive MBA training into existing education programs -Outsource management training -Build a bench of management excellence outside of acquisition field Talent Management (not just leadership) a Core Competency “What’s important? How well your machine works and how well you relate to others” – Lockheed Executive

28 Secretary of Defense Corporate Fellows 28 EXECUTION STRATEGY ORGANIZATION & CULTURE TALENT ENABLING TECHNOLOGIES * Adapted from What Really Works Where Great Companies Put their Emphasis

29 Secretary of Defense Corporate Fellows 29 Organization & Culture DoD Relevance – Importance of strong core values – Simplify – ability to eliminate redundant organizations – Keep raising the bar – reward achievement with praise & pay – Harness innovation as catalyst for transformation efforts Recommendations -Continue strong emphasis on core values -Institutionalize disciplined change management -Drive cost conscious vs. spend culture

30 Secretary of Defense Corporate Fellows 30 Continue Strong Emphasis on Core Values Observations -Pervasive commitment to doing the right thing for customers Ethical standards, honesty, trust, quality -Dedicated members in our Nation’s defense -Strong commitment to corporate citizenship…globally DoD should -Continue strong support to Services for core value efforts Invest in DoD’s success, as well as our Nation, by exporting core values Increase visibility to public sector Organization & Culture “There’s never a right way to do something wrong.” – SRA Int’l Executive

31 Secretary of Defense Corporate Fellows 31 Institutionalize Disciplined Change Management Observations -Successful corporations adapt to change Disciplined part of enterprise processes Constantly learning at all levels of the organization Understand remaining static is not an option due to competition -Successful change management requires People, process, technology…in this order Leadership commitment & ability to communicate vision & strategy New approaches anchored in the corporation’s culture DoD should -Leverage common Process Improvement methodologies -Continue broad-based improvement actions Eliminate regulation, policy, organizational, etc., obstacles -Identify and measure key performance metrics Organization & Culture

32 Secretary of Defense Corporate Fellows 32 Drive Cost Conscious vs. Spend Culture Observations -Corporations focus on cost reduction -Process improvement methodology (Lean, Six Sigma) Lower costs, increased productivity -Performance-based compensation Tied to increased profits 10-60% of total, depending on pay grade DoD should -Incentivize commanders at all levels to control costs Allow unit savings to be used locally - mission, QoL, etc. Unit working capital funds appear a ready-made solution Goal-based approach most successful -Strategically aligned, clearly communicated, routinely reported -Include cost savings In performance appraisals Focus on Total Cost of Ownership (TCO) when assessing alternatives Organization & Culture

33 Secretary of Defense Corporate Fellows 33 EXECUTION STRATEGY ORGANIZATION & CULTURE TALENT ENABLING TECHNOLOGIES * Adapted from What Really Works Where Great Companies Put their Emphasis

34 Secretary of Defense Corporate Fellows 34 Enabling Technologies DoD Relevance – Large, diverse enterprises require the right tools – IT tools changing work environment, individual expectations – Interface with industry/allies requires interoperable IT/other tools Recommendations -Leverage emerging work-support technologies -Use standard, electronic organizational processes -Optimize facilities for the future environment

35 Secretary of Defense Corporate Fellows 35 Observations -Advanced IT accelerating virtual collaboration, matrixed teams -International diversity key to success, yet remains challenging -High technology corporations cultivating a culture of empowerment -Complete network access driving strong work ethic (50-80 hrs/wk) DoD should -Use mobile/wireless technologies to increase productivity -Adopt telecommuting guidance, virtual collaboration tool standards -Continue transformation to Internet-based solutions Leverage Emerging Work-Support Technologies Enabling Technologies

36 Secretary of Defense Corporate Fellows 36 Use Standard, Electronic Organizational Processes Observations -Several high tech corporations have made transition to “paperless” -Strong productivity gains by developing paperless processes Not just duplicating paper forms on-line -Broad application to operational and support organizations Travel planning, reservations, vouchers, etc. Human Resource activities (job openings, performance ratings) Meeting scheduling, agendas, conduct, follow-up DoD should -Implement paperless processes wherever possible -Implement virtual, collaborative processes Process first, then technology solution “If it isn’t on the web, people don’t take it seriously…” – Cisco Sr. Director Enabling Technologies

37 Secretary of Defense Corporate Fellows 37 Observations -Fusion of wireless voice, data, & video; collaborative workspaces Drives more careful facilities management -Creative workspaces can increase productivity, generate savings Small mobile team concepts DoD should -Ensure facilities planning includes entire requirements spectrum Present and future; especially communications and power -Implement flexible workspace utilization modes Small team staff and back office organizations - Acquisition offices, PME, headquarters staff, etc. Optimize Facilities for the Future Environment Enabling Technologies

38 Secretary of Defense Corporate Fellows 38 Enabling Technologies Advanced Video Conferencing Technology Natural Language Processing Radio Frequency Identification (RFID) Internet Protocols – Voice Over IP (VOIP) – Blackberry wireless VOIP Identity Management Hyperspectral imagery Storage Area Networking (SAN) Broadband into the home Instant Messaging / Chat Virtual Modeling and Simulation ePaper Multi-layer film Laser protection Electronic Dashboard (for metrics measuring) Specific Technological Opportunities

39 Secretary of Defense Corporate Fellows 39 Summary of Recommendations Strategy -Apply marketing methodologies to requirements development -Manage anticipated changes in the security environment -Review and manage “core” capabilities Execution – Improve Information and Supply Chain Management – Adjust Acquisition Reform – Implement process improvement methodology Talent -Increase leader stability and continuity -Continue focus on leader development -Management (not just leadership) is a core competency

40 Secretary of Defense Corporate Fellows 40 Summary of Recommendations Organization & Culture -Continue strong emphasis on core values -Institutionalize disciplined change management -Drive cost conscious vs. spend culture Enabling Technologies -Leverage emerging work-support technologies -Use standard, electronic organizational processes -Optimize facilities for the future environment

41 Secretary of Defense Corporate Fellows 41 Agenda Background Common Findings/Recommendations Individual Experiences (time permitting)

42 Secretary of Defense Corporate Fellows 42 Lockheed Martin Corporation World's largest defense contractor – 132K employees (85K scientists and engineers) – $35.5B 2004 sales, $73B backlog, $2.9B cash – Main business segments Aeronautics, Electronic Systems, Space Systems, Integrated Systems and Solutions, and Information &Technology Services Corporate Strategy: Disciplined growth to increase shareholder value – Operational performance and customer satisfaction as top priorities – Consistent financial performance including strong cash flow – Focus on profitable growth in core markets (DOD, Homeland Security, IT) Assignment: President, Missiles and Fire Control business area – Strategic plans and PAC-3 program office

43 Secretary of Defense Corporate Fellows 43 Observations (LM) LM employees: Dedicated members in our nation’s defense Strategy: Clearly stated & focused on customer value – IR&D, Shared Vision, Lab insertion Execution: Flawless operational execution – Executive leadership Council, rigorous metrics, cost consciousness, – Lean/Six Sigma Culture: Performance based, firm commitments, ethical Structure: Matrix org -- Fast, flexible, and flat People: recruit, retain, reward, and develop leaders – Intern program, development programs, pay linked to performance Innovation: 30% IR&D invested in new tech -- passion for invention

44 Secretary of Defense Corporate Fellows 44 Recommendations (LM) Ensure sufficient funds for Contract R&D through labs, DARPA Review core competencies and reduce duplication and redundancy Continue to aggressively pursue outsourcing opportunities Implement a formal process for process improvement Management skills are as important as leadership skills – Incorporate executive MBA training in our PME Encourage commanders to save resources and manpower – Provide incentives to save $$$ and measure on performance reports – Transform from a spend culture to a cost conscious culture Institute a formal mentorship program for scientists and engineers Focus on stabilizing key leadership positions to drive transformation

45 Secretary of Defense Corporate Fellows 45 DOD Acquisition Program stability is key to delivering a successful program Acquisition reform receives high marks but need to add: – Physical Configuration Audits and First Article Inspections – Improve communication w/ industry while protecting proprietary data Knowledge Transfer major issue with ageing workforce Supplier base demands a great deal of LM’s attention – COTS, parts obsolescence, quality controls create supplier issues – Make subcontractor and supplier management plan part of bid Benchmark DCMA’s risk assessment for LMMFC programs

46 Secretary of Defense Corporate Fellows 46 Innovative Diversified Technology company – Revenues $20.1B (61% international) – 67K employees (51% international) – Operations in 60+ countries; products sold in 200+ Seven businesses; 40 units – Health Care – Industrial – Display and Graphics – Consumer and Office – Electro and Communications – Safety, Security, and Protection Services – Transportation Corporate Strategy Delivering solid, consistent profit growth, driven by organic top-line growth and continuous improvements in operational efficiency Assignment - Six Sigma Operations – Black Belt, Master Black Belt, Design for Six Sigma Champion 3M Company

47 Secretary of Defense Corporate Fellows 47 Six Sigma driving results in cost, cash, growth – Common language, established channels, measured performance Aggressive business initiatives optimize processes – Six Sigma – e-Productivity – Global Sourcing – Global Business Processes – 3M Acceleration – $1.7B combined Operating Income impact of five initiatives since inception Entrepreneurial Leadership – Utilizing Six Sigma and leadership development opportunities – Performance management focus – Stretch assignments – Top management engagement in growth Observations (3M)

48 Secretary of Defense Corporate Fellows 48 Deploy a DoD process improvement discipline similar to Six Sigma – Top level support – Beware superficially applied, under-resourced “quality programs” – Common language, common metrics Leverage DoD size in “back room” processes Incorporate Radio Frequency Identification (RFID) technology – Where 100% accountability is critical – Medical, Personal Reliability Program (PRP), logistics, intel Partner with the services to provide comprehensive DOD solution to protecting cockpits, tanks, and vehicles with multi-layer film to protect eyes from outside lasers Consider synergy of establishing joint labs, acquisition offices, joint requirements offices, joint research and development organizations Recommendations (3M)

49 Secretary of Defense Corporate Fellows 49 Honeywell International Inc. Fortune 100 Company – $25B sales, $31B market capitalization – 108K employees in nearly 100 countries – Business segments Aerospace Automation and Control Solutions Transportation Systems Specialty Materials Corporate Strategy – “Five Initiatives” to drive success – Growth, Productivity, Cash, People, Enablers (DigitalWorks & 6  +) – Principal interrelated key processes Strategic Planning Process (STRAP) for direction Annual Operating Plan (AOP) for budget Management Resource Review (MRR) for people Assignment - Honeywell Technology Solutions, Inc (HTSI) – Aerospace Sector, Aerospace Electronic Systems – Business Development & Military Segment

50 Secretary of Defense Corporate Fellows 50 Observations (Honeywell) History and heritage – AlliedSignal & Honeywell merger – New CEO in 2002 brought Five Initiatives Globalization – Expanding overseas, going where the customers are Functionalization – Engineering, HR, IT, Program Management, Supply Chain Marketing Transformation – Deeper understanding of customers & competitors HTSI – Focusing on growth – Organizational realignment – Government Services division of a product-centric company Return on Investment (ROI) vs. Return on Sales (ROS)

51 Secretary of Defense Corporate Fellows 51 Observations (Honeywell) Honeywell (AlliedSignal) leader of Six Sigma – Senior leadership buy-in – Across entire business (organization) – Dedicated resources – Best people in Six Sigma billets – Efforts linked to critical needs – 6  + includes Six Sigma, Lean, Design for Six Sigma Functionalization key to flattening the organization Key issues for Honeywell / HTSI – Driving profitable growth Changing environment – Integrating the sectors, segments and businesses Cross-Honeywell strategy, product pull-through, joint initiatives – Mindset Conservative approach Prime or sub dilemma

52 Secretary of Defense Corporate Fellows 52 SRA International A Fortune “100 Best Company to Work For” - Winner for last 6 years; 4,100 employees nation-wide - 2004 Revenues: $615M / 2005 Projected: $850M - Growth from 2003 to 2004: 49% - Company founded by a McNamara Whiz Kid (USAF Colonel) Corporate Strategy - Provide IT Services & Solutions to Federal Government only - 65% DoD/DHS; 35% Civil Government - Hire employees “for a career” - Innovation in C3I and Data/Text mining Assignment - Defense Sector x 3 months (Business Unit / Project Level) - Civil Sector x 5 months (Sector / Senior VP level)

53 Secretary of Defense Corporate Fellows 53 Observations (SRA) Corporate Strategy working thru… - Selective acquisitions based on “values”; not just “of value” - Internal investments in explosive external growth - Development of horizontal expertise to increase agility - Persistent and insistent adherence to SRA Culture & Values Corporate Execution focused on… - Genuine desire to add value for the customer…ethically - Reaching for higher purpose goals (national interests) - Caring for their people who provide the “services” Evidence? - 80% win rate on new contracts; 90% on re-competes - Less than 12% personnel turn-over rate - Demonstrated willingness to “invest $” to maintain customer satisfaction - Employee incentives found at all levels of the company

54 Secretary of Defense Corporate Fellows 54 Recommendations (SRA) Transformation - Change is occurring and will continue in DoD - Rapid change requires incentives - Effective change requires focus Industry focuses on… - H elping DoD identify its requirements and solutions - Incentives for their people - Being agile and responsive - Investment in internal growth and processes What can or should DoD learn from industry? - Investments in people + Incentives for people = Rapid Transformation

55 Secretary of Defense Corporate Fellows 55 Cisco Systems Inc. Global leader in Internet innovation, equipment, services – Revenue $23B; profit $15B (+ $6.8B cash) – Market Capitalization $132B (2:1 WRT top 11 competitors combined) – 35K employees worldwide ($657K profit/employee) – Primary business segments Core - routers & switches Advanced Technologies - Voice over Internet Protocol (VOIP), optical, wireless, etc Service Provider - tech support, manufacturing, training, etc Corporate Vision - “Changing the way we work, live, play and learn” – Unprecedented value & opportunity - Cisco synonymous with productivity – Customer partner status - technology + business success = trust – Network evolution leader - End-to-End  Net of Nets  Intelligent Network – Expand, grow Advanced Technologies - 4 new business areas  $2B, 8  $1B – Drive quality, security, systems, processes into culture Assignment: IT/Infrastructure Business Practices – Program management improvements – Strategic planning initiatives

56 Secretary of Defense Corporate Fellows 56 Observations (Cisco) Strategy: Pioneer use of Internet for all business activities – Generate 95+% of sales via www.cisco.com website ($40K/minute) – Showcase internal IT Internet solutions  revenue generation Execution: Build, acquire, partner – Leader in business acquisition  90+ companies in last 10 yrs – ~1,000 new employees/month over 3 yr period in late ‘90s Organization: Empowerment via virtual collaboration, matrixed teams – International diversity key to success; remains challenging – Reward success (top 20%) – Aggressively manage poor performance (bottom 5%) – Actively build consensus (recurring 1:1s); use 360 degree feedback sessions Culture: Intense organizational commitment to “Cisco Culture” – Customer success, innovation, stretch goals, integrity, corporate citizenship – Complete network access drives strong work ethic (50-80 hrs/wk typical)

57 Secretary of Defense Corporate Fellows 57 Recommendations (Cisco) Continue transformation to Internet-based business solutions – Leverage corporate investment in robust IT foundation & lessons learned – Virtual collaboration holds potential for rapid change at all levels – Drive towards increased info accessibility/availability Balance with info security Strengthen (potentially elevate) CIO role within DoD organization – Enable stronger partnerships with tech industry leaders – Provide focal point for spending authority, interoperability, standardization – Potential to leverage lower cost, overseas solutions Balance with procurement regulations, security, Congressional oversight Assess benefit of proactively identifying/separating low performers – Build strong incentives for higher performance – Additional tool to manage reductions in force when required

58 Secretary of Defense Corporate Fellows 58 Hewlett-Packard Company World’s leading consumer and small/med business IT company – $80B Sales (#11 on Fortune 500) – 152K employees worldwide – Business segments Imaging & Printing Personal Computing Enterprise Systems HP Services Corporate strategy - Increase value through growth & innovation “Reliable innovation at a price our customers can afford, delivered with an experience that sets us apart. We deliver high tech, low cost and best customer experience” ● Assignment - VP Federal Sales

59 Secretary of Defense Corporate Fellows 59 Observations (HP) Much of the “HP Way” remains intact – Left to themselves, employees will do the right thing – Departure of CEO Fiorina had cultural overtones Similar to US Services – Size, worldwide reach, team diversity – Challenges Employee integration Team building Communication and horizontal integration Acquisition of Compaq – Resembles integration of US Services in joint environment CNO has had this discussion with HP CEO

60 Secretary of Defense Corporate Fellows 60 Observations (HP) Commitment to doing the right thing for the customer is pervasive – Historically, no aggressive lobbying or direct attacks Share of direct business with DoD relatively small – Plan for public sector growth being debated internally Strong commitment to global citizenship – More than traditional philanthropy (not just writing checks) New CEO is much more hands-on, operationally oriented – Well-received by analyst community and by employees

61 Secretary of Defense Corporate Fellows 61 Caterpillar Inc. World’s largest heavy equipment producer – Construction equipment – Mining equipment – Natural gas engines – Industrial gas turbines – Diesel engines Heart of Illinois - Peoria – $30.25B sales; $2.03B profits – 77K + employees (38K U. S.); 198 dealers worldwide – Main business segments: Machinery, Engines, Financial Products Professional corporate culture – Steeped in Midwestern values; grows own leaders – Positive work environment - trust, quality, community involvement – Ethical standards and honesty in dealing with customers Assignment – CAT Logistics VP, Human Resources Division Strategic projects in leadership training, recruitment, employment, retention – Operations Area next

62 Secretary of Defense Corporate Fellows 62 Observations (CAT) Cat employees - dedicated, innovative and professional. – Relationship with company characterized as “Partnership”; Very Patriotic Strategy - articulated top down; executed bottom up – Focused on 3Ps Profitable growth, Performance through Six Sigma and People Execution: Operational excellence in all areas – Involved senior leadership Professional corporate culture – Positive work environment-trust, quality, community involvement – Ethical standards and honesty in dealing with each other and customers Structure - Matrix org w/ 26 business units People – Diversity focused; getting “right people on the bus” is corporate critical success factor

63 Secretary of Defense Corporate Fellows 63 Recommendations (CAT) Deploy Six Sigma or similar process improvement methodology for elimination of inefficiencies and process quality improvements Conducted “top to bottom” force structure review to ensure we are getting right people with rights skills to meet future challenges Conduct comprehensive pay study to close pay gap with civilian sector Restructure benefit packages Adapt Shared Services Model; focus on core functions/enablers Conduct study to assess implementing Behavior Based Safety Methodology

64 Secretary of Defense Corporate Fellows 64 Backup

65 Secretary of Defense Corporate Fellows 65 MEF/CC CAG/CC Key Roles: Six Sigma Organizations Six Sigma Director Six Sigma Director Service Chief MAJCOM CC Unified Commanders Post CC Functional Leader BB MBB BB CFACC/CFLCC/CFMCC Wing CC Base CC BB MBB BB NAF CC Corps CC Functional Leader Six Sigma Operations GB DOD / Joint Director Champions Six Sigma Personnel Green Belts Black Belts KEY Direct Report Matrix Execution


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