0 Copyright 2004 Northrop Grumman Corporation Evolving To

0 Copyright 2004 Northrop Grumman Corporation Evolving To A Knowledge-Centric Organization Panel Presentation ASMC Washington Chapter Mini-PDI March 29, 2005

1 Copyright 2004 Northrop Grumman Corporation Agenda • Introductions • Dr. Michael Stankowski, D. Sc. , Associate Professor, George Washington University • Mr. James E. Short, Deputy Assistant Secretary, Financial Operations, SAF-FM • Dr. Bill Lese, V. P. SATS, DES, NGIT • Questions & Answers

2 Copyright 2004 Northrop Grumman Corporation Dr. Michael Stankowski D. Sc. , Associate Professor, George Washington University Connecting Knowledge Assets

3 Copyright 2004 Northrop Grumman Corporation Institute of Knowledge Management By: Michael Stankosky, D. Sc. and Andreas N. Andreou, Research Director

4 Copyright 2004 Northrop Grumman Corporation Introduction: A KNOWLEDGE-BASED ECONOMY Overview v KM Pays off v KM Perspectives v Intellectual Capital (IC) v Knowledge Assets (KA) v KM Economic Model v Why intangibles? v Value drivers v IC Schema v Back to basics v A suggested template v Q&A

5 KM Pays Off Copyright 2004 Northrop Grumman Corporation Dow Chemical: $100 m Silicon Graphics: $2. 8 m Texas Instruments: $500 m (cost avoidance) Computer Sciences Corp: $5. 8 b Chevron: $150 m Cemex: (average delivery time 20 minutes) Ford: 3 month reduction in cycle time Cisco: One hour virtual financial close

6 KM Perspectives Copyright 2004 Northrop Grumman Corporation “SHARING RELEVANT KNOWLEDGE IS POWER” “IF IT ISN’T BROKE, BREAK IT” “IF WE ONLY KNEW WHAT WE KNOW”

7 Intellectual Capital Copyright 2004 Northrop Grumman Corporation “Intellectual capital is what it’s all about. Releasing the ideas of your people is what we’re trying to do, what we’ve got to do if we’re going to win. ” Jack Welch

8 Knowledge Assets Copyright 2004 Northrop Grumman Corporation • INTELLECTUAL ASSET/CAPITAL • HUMAN CAPITAL • MARKET CAPITAL • STRUCTURAL CAPITAL • PROCESS CAPITAL • RENEWAL CAPITAL • INTANGIBLE ASSETS

9 Copyright 2004 Northrop Grumman Corporation What is an Economic KM Model? A model that allows for the accounting of of non-financial (intangible assets) measures and indicators in the market valuation of today’s business enterprise. Definition of Intangible Asset “An intangible asset is a claim to future benefits that does not have a physical or financial (a stock or a bond) embodiment. A patent, a brand, and a unique organizational structure (for example, an Internetbased supply chain) that generate cost savings are intangible assets. ” (Baruch Lev, Intangibles Management, Measurement and Reporting, 2001, page 5)

10 Why Intangibles? Copyright 2004 Northrop Grumman Corporation Why is there a need to account for intangible assets? r r Intangible assets account for 70% of the value of a business enterprise and they are not adequately represented in current accounting methodologies (GAAP). There is increasing discrepancy between the market values of many corporations and the values of their shareholder equity when measuring their book value in accordance with GAAP. Market-to-book ratio for companies has gradually risen to about in the late 1990 s (Lev, 2000 4). For every one dollar on companies books, there are five dollars unaccounted for. What is the driver for the need to account for intangible assets? r We are in the information age, which is dominated by service organizations (Hope and Hope, 1997) -- 1995 is remembered as the year companies serving industry outnumbered those in industry in the US (Sveiby 1997 20) r r Services have increased steadily as a share of measured total output in the economy and the delivery of high-end skilled services and professional services involves substantial input of intangibles. (Blair and Wallman, 2000 p 12) Capital accumulation has more than doubled in the last 10 years and the bulk of this growth is attributed to information technology (Bosworth and Triplett 2000)

11 Value Drivers • CUSTOMER • COMPETITOR • EMPLOYEES • INFORMATION • PARTNER • PROCESS • PRODUCT/SERVICE • TECHNOLOGY Copyright 2004 Northrop Grumman Corporation

12 IC Schema Copyright 2004 Northrop Grumman Corporation

13 Copyright 2004 Northrop Grumman Corporation Back To Basics “We don’t have a way to classify the intellectual capital or knowledge. ” Ray Lane, Former COO of Oracle “Our problem is we don’t know what we know. ” Lew Platt, Former CEO of Hewlett. Packard Problem statement: Lack of fundamental and coherent understanding of the knowledge assets that we try to manage at the lowest level of operational granularity. What is needed: A list of knowledge assets that can be attributed to performance outcomes. An architectural blueprint that shows what is relevant to be shared. A template that includes both tacit and explicit knowledge, that goes beyond the traditional information found in a CV.

14 A Suggested Template Copyright 2004 Northrop Grumman Corporation

15 Copyright 2004 Northrop Grumman Corporation ENTERPRISE MANAGEMENT, ENGINEERING, AND INTEGRATION: A Systems Approach to Leverage Enterprise-wide Intellectual Assets FEEDBACK INPUTS FEEDBACK PROCESS Functions Processes OUTPUTS Intellectual Assets (Operational) Codification Personalization u Assure u Generate u Codify u Transfer u Use Organization Formal Informal KM Technologies • Collaborative • Distributive • Codified Michael Stankosky, D. Sc, George Washington University © 2001—All Rights Reserved

16 Performance Metrics Copyright 2004 Northrop Grumman Corporation • MEASURE WHAT IS OF VALUE/MEANINGFUL • BALANCED-SCORECARD • EMPLOYEE GROWTH/LEARNING • ORGANIZATIONAL GROWTH/LEARNING • CUSTOMER SATISFACTION • KNOWLEDGE CONTRIBUTION (PATENTS, NEW INITIATIVES, REDUCED TIME-TO-MARKET, ETC) • IMPROVED CORE PROCESSES

17 Copyright 2004 Northrop Grumman Corporation Any Questions?

18 Copyright 2004 Northrop Grumman Corporation Mr. James E. Short Deputy Assistant Secretary Financial Operations Transforming The Way We Work Together

19 Copyright 2004 Northrop Grumman Corporation What is Knowledge Management (KM)? “Knowledge Management is a systemic process of identifying, capturing, and transferring information that can be used to enhance performance or improve related tasks or processes. ” (Information Resources Flight Plan Aug 04) Simply put, KM connects people to people and people to knowledge

20 Copyright 2004 Northrop Grumman Corporation Challenges from FM Strategic Plan • “Deliver global financial services, manage Air Force resources, and help Air Force leaders be effective and efficient resource stewards and make informed resource decisions. ” • “Develop a sustained passion for continuous improvement and innovation that will propel the Air Force into a long-term, upward spiral of accomplishment and performance. ” • “Make processes efficient and effective to produce accurate and relevant financial information complemented by sophisticated decision support. ” • “Knowledge management systems are just one part of an effective strategy that will help generate, capture, and disseminate knowledge that is relevant to the organization’s mission. ”

21 Actions Copyright 2004 Northrop Grumman Corporation • Established FM Knowledge Management (FM KM) Core Team to assist FM Community; SAF/FM Chief Knowledge Officer position established October 04 • Using Air Force Knowledge Now as the on-line vehicle to facilitate learning and collaboration • Aiding the FM Transformation effort • Using Communities of Practice (Co. P) as the primary collaboration tool in the FM Community - 55 new FM Co. Ps published in FY 04, bringing total to 132 Co. Ps (71% growth) and 3, 065 unique Users in FM Co. Ps (158% growth)

22 Results Copyright 2004 Northrop Grumman Corporation • Improved communications within and across organizations (24/7/365 global access) • Cost/Time Savings —“Automated Tools Forum” one primary example • Higher Productivity/Improved Mission Accomplishment —“Wisdom Exchange” links FM subject matter experts with questions from the field —Weaving KM into the fabric of FM everyday work

23 Call To Action Copyright 2004 Northrop Grumman Corporation • Air Force-wide Knowledge Management Conference in May • FM KM Strategy Development after the Air Force Conference • FM KM booth & theatre time at ASMC/PDI May/Jun • Marketing and training will continue to be immediate challenges for FM KM

24 Copyright 2004 Northrop Grumman Corporation AF FM KM go to https: //www. my. af. mil/afknprod/fmkm

25 Copyright 2004 Northrop Grumman Corporation Back-up Slides

26 Copyright 2004 Northrop Grumman Corporation KM Benefits • Fosters innovation • Improves customer service • Enhances employee retention • Streamlines Operations and Reduces Costs • Better, Faster Decision-Making

27 Copyright 2004 Northrop Grumman Corporation Communities of Practice (Co. Ps) • Facilitates information sharing and organizational learning — conduct business — manage projects — keep abreast of important group issues — solve group problems

28 Copyright 2004 Northrop Grumman Corporation FM Air Force Knowledge Now Performance Analysis • 2 -Month Study conducted Fall 04 • Detailed briefing given to Mr. Vonglis on 3/17/05 • Presentation will be given to Air Force KM Conference in April • Study provides several recommendations: —Establish KM Governance Structure —Use findings from the analysis as input to written FM KM Strategic Plan —Meet with FM Transformation Owners

29 Copyright 2004 Northrop Grumman Corporation Chief Knowledge Officer (CKO) Memorandum • Memo signed 4 Oct 04 by Mr. Montelongo • Legitimizes/establishes the CKO position • CKO charged with coordinating knowledge-related efforts, coaching senior leadership, and connecting people • One goal is to establish KM Advisory Council • Memo distributed to all ALL MAJCOM/FM

30 Copyright 2004 Northrop Grumman Corporation FM KM Strategy Development • Reviewed FM KM FY 03 Workshop output • Will incorporate recommendations from FM AFKN Performance Analysis • CKO Interface with CIO —CIO developing Air Force Information Management Strategy, which will address Knowledge Management • Planning Session scheduled May 11 th with Hubert Saint-Onge

31 KM Working Group Meetings Copyright 2004 Northrop Grumman Corporation • Bi-weekly meetings started in August to work active issues and share knowledge • Expanded membership to include FM KM Core Team, FMT, AFKN offices • Issues addressed include: — Broken Links issue as a result of moving to AF Portal — Service Delivery Model — Budget Formulation System — Budget Co. P — Air National Guard Knowledge Capture — Air Force Knowledge Services — Forum to work transition of FM KM initiative to Air Staff

32 Copyright 2004 Northrop Grumman Corporation FM KM Transition to SAF/FM • Estimate 1 Oct 05 for handoff • KM Working Group serving as forum for identifying details of Transition Plan • Overview strategy briefing given to Maj Gen Faykes and Mr. Short

33 Copyright 2004 Northrop Grumman Corporation Dr. William G. Lese, Vice President Simulation, Analysis, & Training Systems, Northrop Grumman IT Achieving Corporate Excellence through Enabling Knowledge Centric Operations

34 Copyright 2004 Northrop Grumman Corporation Knowledge Management Perspective Information Systems • Platforms & Storage • Software Infrastructures • Networking & Communications Technology • Electronic Workplace • Enterprise Application Packages Structure • Management Hierarchy • Lines of Communication Organizations and People Communities of Practice • Values • Behaviors • Attitudes • Rewards Supporting Infrastructure Value Chain • Research • Design • Develop • Acquire • Deliver • Support Culture Processes and Practices • Planning • HR • Contracting • Purchasing • Etc.

35 Copyright 2004 Northrop Grumman Corporation The New Northrop Grumman Northrop Vought Aircraft Logicon 8/94 5/97 5/94 Grumman Aerojet 3/96 Westinghouse Defense Electronics Newport News 10/01 11/01 4/01 Litton 10/00 Sterling Software TASC, PRC 12/02 Northrop Grumman TRW BDM Sperry Marine Ingalls, Avondale Shipbuilding § Decade-long transformation to complete National Security portfolio § Process for post-merger integration recognized by: – Forbes, 2002 Company of the Year – U. Va. Darden School Best Practice Case Study – Deloitte Consulting white paper on mergerintegration Integration Best Practices § Integrate quickly; manage integration like a program, with milestones, schedules, and work statements § Assign direct integration duties to senior executives § Focus initially on financial, legal/regulatory, and human resources systems § Maintain focus on customers § Communicate integration plans continuously, to all employees and customers, paying particular attention to lower-level management § Address cultural issues § Identify existing best-practices from within individual organizations, extend those to the enterprise (don’t develop new approaches) § Later, use synergies to develop new capabilities

36 Copyright 2004 Northrop Grumman Corporation KM Benefits to Northrop Grumman • Creates Synergy across the Entire Corporation • Increases Operational Efficiencies • Manages a Changing Environment • Ability to Capture the Knowledge of an Aging Workforce • Stimulates Innovation which Provides a Competitive Advantage • Ability to Rapidly Sense & Respond • Ready Knowledge Access Across Enterprise • Ability to Identify and Resolve Emergent Issues • Ability for a Geographically Dispersed Workforce to Collaborate • Ability to Integrate Technologies Seamlessly into Customer Solutions • Ability to Leverage Business Development Opportunities

37 Copyright 2004 Northrop Grumman Corporation NGC Knowledge Journey – Key Milestones • 1996: First customer KM engagement with USJFCOM • 1997: Started Internal Knowledge Management (KM) • 1999: Expanded KM Across IS Sector • 2000: Formed Corporate-wide KM Community of Practice • 2001: Expanded KM Across Integrated Systems Sector • 2001: Participated in the Industry Benchmarking Study on Communities of Practice • 2001: Corporate Sponsorship - KM Council Formed • 2002: KM Teams Established in Other Sectors • 2002: Identified as a Best Practice in KM by Industry • 2003: Established a Corporate KM Strategy • 2004: Corporate level funding committed • 2004: Conducted 6 th Corporate-wide KM Summit • 2004: Created KM Program Manager position • 2005: Deploy Collaboration Infrastructure and Tools

38 Copyright 2004 Northrop Grumman Corporation KM Relationship to Enterprise Solutions ENABLING BETTER INFORMED DECISIONS TH EE NT ER P RIS E DECISION SOLUTIONS KNOWLEDGE MANAGEMENT DECISION QUALITY KNOWLEDGE UNDERSTANDING ENTERPRISE ARCHITECTURE CONNECTIVITY DATA PROCESSING INFORMATION DATA & TRANSACTIONS THE CUSTOMER’S PROCESSES AND DATA • Right Knowledge • Right Place • Right Time • Actionable

39 Copyright 2004 Northrop Grumman Corporation Elements to Our KM Strategy Activities Objectives Outcomes § Knowledge is Easily § Ability to Rapidly Identifiable and Sense & Respond Accessible § Ready Knowledge § § NG is a Knowledge Access Across Optimized Culture Enterprise – Knowledge § NG Shares a Depots § Ability to Identify Common Language § – COPs and Resolve and Governance – Expert Networks Emergent Issues § NG has Embedded § Provide Common § Ability to Knowledge Tools Enterprise-Wide Collaborate Across§ and Processes Talent and Enterprise § Able to Rapidly Capabilities § Ability to Integrate Stand Up High Management Technologies Performing Teams Solution Seamlessly to § § Enterprise-Wide Customer Access to § Establish a Solutions Capabilities Governance § Ability to Leverage § Highly Coordinated Solution Enterprise for Business § Put in Place a KM Customer and Development Developed at a Cross-Sector Workshop facilitated by Hubert Saint-Onge Supplier Knowledge Technology Opportunities Infrastructure § Provide Common Enterprise-Wide Processes and Systems Drivers Build Technology Portfolio Pursue Emerging Opportunities Apply Technology and Talent Improve Performance

40 Copyright 2004 Northrop Grumman Corporation KM Strategy Implementation Actions 1. The ability to rapidly tap NG’s talent 2. The ability to maintain tacit knowledge continuity 3. The ability for people to share, learn and collaborate 4. The ability to find and reuse knowledge regardless of sources 5. The ability to manage customer relationships 6. The ability to share enterprise excellence knowledge 7. Focus on culture shift & communications 8. A high leverage cross-sector competitive business pursuit 9. Information architecture 10. Establish governance model

41 Copyright 2004 Northrop Grumman Corporation KM Projects Oversight Model Corporate KM COUNCIL Strategic Program Leadership Corporate KM PM Management Sector KM Councils KM -- Corporate KM -- ES Sector Steering Groups: KM -- IT Sector KM -- IS Sector Leverage Best Practices KM -- MS Sector Share Enterprise Standards KM -- ST Sector KM -- SS Sector • • • 3 - Collaboration 4 - Search & Taxonomy 7 - Change Management 9 - Information Architecture 10 - Governance 11 - Portal KM -- NN Sector Implementation IIS & KM Teams (S 2 – Integrated Portal Management Team (IPMT)) Tactical

42 Copyright 2004 Northrop Grumman Corporation Discussion Wrap-Up • Knowledge Management is a continuous, never ending journey that becomes the accepted operational model • Human interaction and intellect are at the heart of all KM activities • Information technology is an enabler for KM • Knowledge Management programs can be successfully implemented through different mechanisms • Northrop Grumman has integrated internal KM initiatives with our external KM products and services • KM provides NGC decision makers with actionable decision quality knowledge at the right time

43 Copyright 2004 Northrop Grumman Corporation Washington DC Chapter PDI Q &A DEFINING THE FUTURE