Secretary of Defense Corporate Fellows Final Report Secretary

Secretary of Defense Corporate Fellows Final Report Secretary of Defense Corporate Fellowship Program 2005 - 2006

2005 -2006 Fellows Secretary of Defense Corporate Fellows • CAPT Kate Gregory Southern Company/Georgia Power Atlanta, GA • Col Tom Feldhausen Raytheon Network Centric Systems Mc. Kinney, TX • LTC Dan Matchette Symbol Technologies, Inc. Holtsville, NY • CAPT Gary Peterson Fed. Ex Express Memphis, TN • Col Ian Dickinson Sun Microsystems, Inc. Menlo Park, CA • Col (S) Rich Murphy Johnson & Johnson Skillman, NJ • Col Ray L’Heureux Sikorsky Aircraft • COL Roy Fox The Insitu Group, Inc. Stratford, CT Bingen, WA 2

Agenda Secretary of Defense Corporate Fellows • Background • Common Findings/Recommendations • Individual Experiences (if required) 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 Do. D in future • Businesses outside Do. D successful in: – – Adapting to changing global environment Exploiting information revolution Structural reshaping/reorganizing Developing innovative processes 4

SDCFP Background Secretary of Defense Corporate Fellows • Do. D 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 Do. D 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 6

SDCFP Sponsors Secretary of Defense Corporate Fellows • 04 - Prior – 3 M, ABB, Accenture, Agilent Technologies, American Management Systems, Amgen, Boeing, Caterpillar, Cisco, Direc. TV, Du. Pont, Enron, Fed. Ex, Hewlett-Packard, Honeywell, General Dynamics, Human Genome Sciences, IBM, Lockheed Martin, Loral, Mc. Kinsey & Co. , Mc. Donnell Douglas, Merck, Microsoft, Mobil, Netscape, Oracle, Northrop Grumman, Pfizer, Pratt & Whitney, Pricewaterhouse. Coopers, Raytheon, Sarnoff, Sears, Southern Company, SRA International, Sun Microsystems, Vertex Aerospace • 05 - 06 – Fed. Ex, Insitu Group, Johnson & Johnson, Raytheon, Sikorsky, Southern Company, Sun, Symbol Technologies • 06 -07 – Caterpillar, Deutsche Bank, Du. Pont, General Dynamics, IBM, Mc. Donald’s, Mc. Kinsey, Microsoft, Pfizer 7

SDCFP Results Secretary of Defense Corporate Fellows • Program objectives fulfilled – Education 3 – – Do. D, 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 to Dep. Sec, 40 others – – Business insights relevant to Do. D 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… “ Secretary of Defense Donald Rumsfeld Remarks to The National Defense University 31 January 2002 10

Agenda Secretary of Defense Corporate Fellows • Background • Common Findings/Recommendations • Individual Experiences (if required) 11

Secretary of Defense Corporate Fellows Take-Aways for Do. D Process Alignment Incentives People Tools Workforce Continuous Improvement Collaboration Information Technology Innovation 12

Alignment Secretary of Defense Corporate Fellows • Alignment critical to Strategy – Tactics – Metrics Fundamental theory difficult to implement – Industry execution consistent with DOD – • Implementation challenges Organization functional diversity, scale and complexity – External, uncontrollable forces can become forcing functions – • Great strategy does not always equal great results Tools and metrics are hard to do well – Complex organizations often have external drivers – Alignment disconnect can send mixed/wrong message to workforce – • Keep it simple Make goals local, relevant, personal – Ensure some incentives are tied to local (v. corporate) goals – 13

Incentives Secretary of Defense Corporate Fellows • NSPS and pay for performance – Positives outweigh negatives, but… – Pay bands reduce perception of advancement/achievement opportunity Re-split a band to recognize advancement • Milestones must be created in bands (proficiency, competency, experience) • Employee growth must be self initiated • • Total performance – 80% Performance Management (PM) - 20% incentives – Workforce relations, goal formation, communication, feedback crucial – Incentives won’t overcome poor PM 14

Incentives Secretary of Defense Corporate Fellows • Purpose of incentives – Maintain • Decentralization at J&J, humanitarian awards at Fed. Ex, etc – Align • • culture with strategy through cascading goals Critical Few/Management by Objectives at Fed. Ex Vision, Goals, Metrics, Initiatives at Symbol Technologies Objectives, Goals, Strategy, Metrics at J&J Sun Microsystems’ Playbook – Discretionary • • effort Compliant employee performs at 65% level of effort Fed. Ex uses incentives to achieve > 65% 15

Incentives Secretary of Defense Corporate Fellows • Corporate systems comparable with Do. D – Full • range of theory-based motivational factors Self-actualization, appealing to a higher cause – • Achievement, responsibility, work content, affiliation – • “Purple Promise” is Fed. Ex version of leading in combat in Do. D Recognition – • “A citizen wherever we serve” is Southern Company version of patriotism in Do. D Bravo Zulu and Five Star is Fed. Ex version of Achievement Medals Prevent incentives from becoming an entitlement 16

If Do. D had a Corporate Style Bonus System Secretary of Defense Corporate Fellows • Bonus pay based on seniority, span of control and time • Annual bonus • % base pay: FO/SES – 80%; O 6/05/GS-13/15 – 40%; 04/GS-12 – 15% Annual Bonus GO/FO/SES Joint Goals 40% Service Goals 40% Individual Performance 10% Self Development 10% O 6/05/GS 13 15 10% 50% 20% O 4/GS 12 0% 10% 50% 40% • Additional long-term bonus; 3 -yr performance goals met • If quality goals aren’t met, then zero bonus • How to link incentives to goals that are not profit based? 17

Workforce Secretary of Defense Corporate Fellows “A successful union is a monument to a failure in leadership” - Industry CEO • Corporate focus on customer rather than nurturing workforce – Success at one results in success in the other – Incentivization to receive the most out of labor • Dysfunctional matrix organizations – Stove-piped organizations within company – Efforts to manage collaboratively impeded – Low morale – Not always the right person assigned W/I stovepipe – Empowerment outside functional lines • Non-unionized workforce – Lower costs, increased productivity? – Global competitiveness 18

Continuous Improvement Secretary of Defense Corporate Fellows • Corporate America performance pressures similar to Do. D Competition – Reduced budgets – Downsizing – • Industry using Process Improvement to fight pressures – Methodologies real & proven; 20+ yrs of results • 2% average annual cost savings + efficiency – Do. D $500 B budget @ 2% = $10 B or more potential annual savings – Successful recipe for Process Improvement • • Leadership (CEO) fully involved, middle mgmt held accountable Empower employees, communicate success, shift manpower Assessments to share best practices, determine state of business Employed across the organization, beyond manufacturing 19

Continuous Improvement Secretary of Defense Corporate Fellows • Challenges to Process Improvement – Motivation • • Industry has competition Do. D needs burning platform – Resistance • • to change Six Sigma & Lean - customer focused Do. D - $$$ focused – Leadership required to remove barriers & provide resources 20

Continuous Improvement Secretary of Defense Corporate Fellows • Recommendations – Good start in Do. D; need to increase deployment • • • – Air Force - Smart. Ops 21 Navy - Sea Enterprise Army - Lean Six Sigma Think long-term • • • Don’t demand/expect results overnight Implementation is not “one size fits all” Careful of impact to force – Top leadership support critical to avoid “flavor of the month” – Leverage external/internal expertise until right % of force is trained – Use every educational opportunity to teach Process Improvement 21

Organizational Collaboration Secretary of Defense Corporate Fellows • Large, complex corporations value decentralized, matrix organizations Structure themselves accordingly – Effective collaboration tools, processes, and procedures are critical – • Goal to leverage intellectual capital and “best of breed” solutions • Benefit in reduced cost and improved performance High • Create organization • Deploy processes/tools • Incentivize collaboration Insitu Sikorsky Low Inherent Organizational Barriers to Collaboration Raytheon J&J Fed. Ex • Encourage Collaboration Low Southern Sun Symbol • Deploy processes/tools • Incentivize Collaboration High Level of Collaboration 22

Organizational Collaboration Secretary of Defense Corporate Fellows • Currently in Do. D – Matrixed joint organizations Strong ability to shape warfighting • Limited influence over acquisition/business activities • Collaboration processes/tools highly complex, difficult to use – Limited tangible incentives to collaborate – Services dominate through resource control – 23

Information Technology Secretary of Defense Corporate Fellows • Problem: IT costs Do. D too much for suboptimal results – – – Each Do. D site/org/command has own network Proliferation of applications -- Little standardization Unnecessary security vulnerabilities Wasteful duplication increases costs Poorly utilized personnel • Recommendation: Single Do. D network $Billions potential annual savings – Tens of thousands in potential manpower savings – Security, productivity, effectiveness, efficiency improved – Characteristics of future state – Regional data centers (CONUS/PAC/EUR) with back-up sites • Web-centric thin clients with universal access • Align on Global Information Grid (GIG) Service Oriented Architecture • – First step - joint pilot program--build out from there to minimize risk 24

Innovation: Small Company Case Study Secretary of Defense Corporate Fellows • Growth of an idea – Building a portfolio of intellectual property & achievements • Creating opportunity – Financing • • – Friends & family Angel investors Venture Capital (VC) investors Government grants (small business, research, etc. ) Leadership - taking the next step • Processes and procedures • Quality management systems • Infrastructure development – Changed business model/market focus • Global War On Terror • Urgent military needs 25

Innovation: Small Company Case Study Secretary of Defense Corporate Fellows • Small companies – Strengths • Willingness to assume risk; agility, responsiveness, adaptability; low cost solutions Weaknesses • Lack of government business development, contracting, legal experience/expertise – Typical paths to Do. D – • Strategic alliances and teaming agreements • Acquisitions and Mergers – May be important to transformation & meeting urgent needs • Do. D opportunities Nurture promising companies/technologies -- VC type funding – Take advantage of Off the Shelf solutions for urgent & emerging needs – • DARPA like agency focusing on near term technical solutions • Coordinate & synchronize individual Services’ rapid equipping of organizations – Easier on-ramps for small companies • Business development, legal, contracting, export compliance, etc. 26

Secretary of Defense Corporate Fellows Q&A

Agenda Secretary of Defense Corporate Fellows • Background • Common Findings/Recommendations • Individual Experiences (if required) 28

Southern Company/Georgia Power Secretary of Defense Corporate Fellows • Super-Regional Energy Company – Regulated infrastructure & competitive generation industries – – Five regional electrical utility companies Wholesale energy Gas Wireless communications Energy management Fortune 500 #178 - CY 04 revenue $11. 4 B, $1. 47 B earnings Consistent JD Powers, ASCI, others Customer Service winner • Strategy – – Lead industry in service and customer satisfaction Continue top quartile returns, continued dividend growth – – Long term Earnings per Share >5% Increase competitive generation to $300 M by CY 07 Live “Southern Style” core values - Trust, Performance, Commitment – • Assignment - Georgia Power Company (GPC) – Lead teams to evaluate Distribution Engineering process/organization 29

Observations (Georgia Power) Secretary of Defense Corporate Fellows • Strategy: Provide superior customer service as efficiently as possible – – Maintain high service reliability Keep customer costs low • Tactics – – Maintain community involvement at grass roots level Focus on ever better core business performance • Organization – Hybrid line-matrix organization – Decentralized non-Metro Atlanta operations Matrixed Metro ops, personnel and some financial functions Highly paternalistic; generous personnel policies; loyal workforce • Challenges – – How does a company grow in a regulated, saturated market? How does a labor & fuel intensive company reduce costs? 30

Observations (Georgia Power) Secretary of Defense Corporate Fellows • Balancing centralization/functionalization with decentralization – – Cost savings, higher performance v. reduced customer service, workforce trust Relationship-based management v. matrixed organization • Fostering transformation in a traditional utility organization – – – Lack of drivers - little cost pressure or stiff competitive focus Lack of opportunity - no new product development & market expansion focus Risk averse – Customers/stock holders expect consistent, steady performance • Especially post – Enron • Creating a performance – focused culture – – Corporate culture strongly encourages consensus, loyalty, networking • Average attrition 2. 5% External, uncontrollable events often drive company financial performance • Organizational or individual performance results obscured 31

Raytheon Corporation Secretary of Defense Corporate Fellows • Leading U. S. defense contractor – – – 80 K employees world-wide 2004 sales - $20. 2 B Business units Missiles Intelligence & Information Integrated Defense Network Centric Systems Space & Airborne Raytheon Aircraft Co. Technical Services • Corporate Strategy – – Grow position in core defense markets Use the Strategic Business Areas to leverage domain knowledge Return Beechcraft and Hawker brands to a pre-eminent position Be a customer focused company • Assignment Network Centric Systems 32

Observations (Raytheon NCS) Secretary of Defense Corporate Fellows • Engineering dominated company – Focused on high tech solutions • Successful integration following multiple acquisitions – – Hughes, E-Systems, Texas Instruments defense business Working to compete as Tier 1 defense contractor • Decentralized business model – – Sales & profit targets being met Attempts to gain efficiency only partially successful • Strong process focus – – Highly detailed with continuous improvement focus Raytheon Six Sigma yielding success • Attitude and personal commitment to continuous improvement Less focus on metrics • Strong buy-in at senior management and functional levels But limited buy-in throughout workforce 33

Recommendations (Raytheon NCS) Secretary of Defense Corporate Fellows • Acquisition reform viewed positively; improvement still required – – Inadequate tools to deal with rapid pace of technology change Lead System Integrator contract structure inhibits efficiency – Virtually all Do. D oversight requirements remain Responsibility for integration transferred to industry Expansion of FAR Part 15 “commercial” product definition Enhanced applicability, but use limited Lack of understanding Concern over lack of oversight mechanisms • Recommendation - Establish Do. D/Industry contracting forum – – Identify new contracting strategies Ensure value-added oversight while maximizing cost/schedule efficiency 34

Symbol Technologies, Inc. Secretary of Defense Corporate Fellows • Enterprise Mobility – Capture, Manage, Move Data at Point of Transaction – $1. 7 B revenue in FY 04, 5300 associates, 54 countries • Hardware and software – – Mobile Computers, RFID, (Barcode) Scanning Technology to capture data Wireless Networks securely move information to the host system Available in real time for decision makers, managers, other systems • Corporate Strategy - the Mobile Workforce – – – Growth in world markets, specifically to out-pace US growth Channel Centric partner ecosystem Targeting specific markets Highly ethical corporate culture High level of R&D • Assignment: Corporate Marketing and Radio Frequency Identification – – – RFID and Government marketing team RFID product development Federal Sales teams 35

Observations/Recommendations (Symbol) Secretary of Defense Corporate Fellows • Very technically skilled – – Great deal of emphasis on Intellectual Property and patents Almost 10% of revenue spent on R&D • Associates dedicated to the company and to doing well, however – – “The GM Affect” resonates Clear sense employees must look after themselves, the company can’t be relied on • Stable, Top Level Leadership Critical – Too many re-orgs, executive changes, and lay-offs create – – Negative energy ripples and abets the GM Affect Stability and openness is an absolute requirement Corporate culture very hard to change Requires years of coordinated and repetitive messaging from a stable leadership team • Wall Street isn’t fair, get over it and deal with it – Perception is reality if you’re not careful • Symbol fundamentally gets integrating Ops, Engineering, Sales, Marketing – – Do. D needs an integrated marketing/public diplomacy campaign Marketing is not Public Relations; nor PSYOPS 36

Observations/Recommendations (Symbol) Secretary of Defense Corporate Fellows • Six Sigma – it’s a good methodology, use it – – – Not another TQM spin-off Can be used on any project or process Ten months, $1. 2 M in costs, $2. 2 M in savings • Time to take charge of Do. D business systems and IT – – – – – Consolidate ALL Do. D e-mail servers to one Create a single Do. D portal; consolidate most other web servers worldwide Consolidate all directory and access services; CAC is not always the right answer Consolidate all application servers and file and data storage into a single entity Convert all applications to use web/XML/Java/SOAP languages for service access Thin client is right for many Do. D environments, especially tactical and classified Create a mobile agnostic access workforce everywhere, not just tactically Security is important, but it’s just an application OK to customize, Commercial Off the Shelf is not always the right answer 37

Fed. Ex Express Secretary of Defense Corporate Fellows • Fed. Ex Corporation – – Operating Companies: Express, Ground, Freight, Custom Critical, Kinkos Support Companies: Trade Networks, Services, Supply Chain Services • Strategy – – Operate Independently, Compete Cooperatively, Manage Collaboratively ”The Purple Promise” • Assignment: Fed. Ex Express – Global Operations Center • Cross functional communication analysis • Facilitated Integrated Process Improvement Team – Global Operations, Scheduling, Control, and Planning • Project Manager for continuity of operations contingency planning 38

Observations (Fed. Ex Express) Secretary of Defense Corporate Fellows • Challenges – – – Grow internationally while improving lane balance Control costs domestically for increased margins Trend is toward deferred service with lower margins Compete with UPS’s single, large, efficient network Seamless customer brand access yet operate independently • Fed. Ex is good but not mistake-proof – – – Pilots are unionized and it is a somewhat difficult relationship European penetration failure and subsequent small footprint Third Party Logistics has a reduced focus (far less than UPS) • Superior focus – – – “Only as good as tonight’s sort” Record Service Quality Indices (SQI) and earnings US Postal Service contract; revenue stabilized and earnings growth 39

Recommendations (Fed. Ex Express) Secretary of Defense Corporate Fellows • Leadership Culture and Leader Supporting Process (LSP) – – – Case study for Do. D - creating flexible, adaptive, innovative environment Integrates with and is not suppressed by management processes “People-Service-Profit”…People really do come first and it works • Integrate LSP with Business Transformation Agency (BTA) strategy • Fed. Ex “operate independently” strategy similar to Do. D Services – – Case study for creating cross operational command info visibility Fed. Ex Services a model for BTA as a “manage collaboratively” vehicle • Express lane imbalance and domestic Ground service improvement – – Opportunity for improved DOD logistic efficiency and visibility USPS contract is a successful pilot program for DOD to study 40

Fed. Ex Express Final Observation Secretary of Defense Corporate Fellows • TQM philosophy without time-consuming techniques – – – Relentless customer focus and matching metrics Quality built-in with good data access and uncomplicated reports Participative culture and fearless workplace Root cause seeking analysis and continuous improvementality No Six-Sigma, no LEAN, just quality as a way-of-working Leadership-based success built on learning TQM in 1980’s/90’s with nonvalue added elements removed (kept the wheat and removed the chaff) • What remains is a no-nonsense leadership culture that is fast and adaptable, supported by strong company identity, excellent information access, emphasis on learning, freedom of action (no fear), and employee participation 41

Sun Microsystems, Inc. Secretary of Defense Corporate Fellows • Internet Infrastructure major player (hardware “behind” the internet) – – FY 05 revenue $11. 1 B; loss $107 M (+ $7. 2 B cash) Market Capitalization $14. 2 B ~40 K employees worldwide Primary business segments Core – network infrastructure (network computing products, services) Service Provider - tech support, client solutions, software subscription • Corporate Vision - “Everyone and everything participating on the network” – – – Vision and mission is a crusade as much as a business Take pride in being contrary to the IT provider mainstream Focus on innovation – – Heavy spend on R&D despite post-dot. com revenue struggle Now poised to turn the corner with key hardware offerings on several levels Proof, in some ways, lies in stock price response • Assignment: IT/Chief Technology Office – – Managed strategic outsourcing of application development and maintenance Member of technical team evaluating new technologies 42

Observations (Sun) Secretary of Defense Corporate Fellows • Strategy - Connect everyone and everything to the network – – – Thin client computing model provides mobility and security i. Work model saved Sun $319 M over 5 years; $6. 4 M in FY 06 real estate alone Mobile workforce fits with corporate culture • Execution - Earn customer base through performance; not by “capture” – – 11 words: Make Money, Grow, Re-enlist Champions, Leverage our Partners, Simplify our Business Acquire intellectual property that fits (See. Beyond, Tarantella, Storage. Tek) • Organization - One integrated company, non-core effort outsourced – – Unafraid of using partners to handle extensive support roles, even in IT Rapidly integrate acquired companies and re-brand products • Culture - “Contrarian Minds” - innovate without dependence on mainstream – – – Take pride in going against popular thought Integrity a key aspect of how Sun sees itself Corporate culture does not require extensive face-to-face 43

Recommendations (Sun) Secretary of Defense Corporate Fellows • Pilot and expand use of mobility computing model – – – Use current efforts to determine soundness of approach Deployment possibilities BRAC move flexibility • Use crawl, walk, run methodology – – – Allow Do. D to break from constant patch-and-update spiral Carefully plan approach toward eliminating touch admin at the client Regain support personnel rechanneled to systems administration • Outsource strategically, not locally – – – If the model makes sense, use it widely Ensure capability to scale up or down Maintain flexibility to deal with market effects on providers 44

Johnson & Johnson Secretary of Defense Corporate Fellows • World’s Most Broadly Based Manufacturer of Health Care Products – – – Revenues exceeding $47 B 113 K + employees Operations in 57+ countries; products sold in 200+ countries • Three Major Market Segments; 210+ Family of Companies – – – Pharmaceutical ($22. 1 B) - #4 in the world Medical Devices & Diagnostics ($16. 9 B) - #1 in the world Consumer Products ($8. 3 B) - #8 in the world • Corporate Strategy – Leverage Leadership, Credo, and Decentralization to double company by 2010 • Assignment – Consumer Research, Development, & Engineering – – Process Excellence - Mentor is a Master Black Belt Develop a Communications Plan w/Six Sigma Process (Certification) Value-stream map Global Product Release Process w/ Lean Manufacturing Develop Global Dashboard/Scorecard for RD&E; Benchmark w/Regions 45

Observations (J&J) Secretary of Defense Corporate Fellows • J&J Credo Culture – – Responsibilities to: #1 Patients, #2 Employees, #3 Community, #4 Shareholders Strategy, Vision, Moral Compass, & Statement of Heritage all in one! Credo-based Decisions: Tylenol Scare; Preservation of Reputation & Brand Credo Survey every year; leadership serious about making change • Decentralization – – – Management responsibility placed at level closest to the customer Challenge to centralize where it makes sense (i. e. . Pay, IM, HR…functions) Support decentralization where it brings value to the company • Process Excellence (PE) - culture of continuous improvement – – Formalized PE in 2003; PE Leadership Team, CFO is PE Leadership Team (PELT) head Fused into all levels: Leadership, Mid-level Leaders, Employees Major pillars: Six Sigma, Design Excellence & Lean Standardized Training, Certification, & Leadership involvement • Align Employee Tasks to Company Goals Through OGSM & Roadmaps – – – OGSM = Objectives, Goals, Strategy, Measures; each company different Formalized throughout organization: communicated top to bottom Employee performance plans reflect OGSM targets; Compensation 46

Recommendations (J&J) Secretary of Defense Corporate Fellows • Deploy a Do. D process improvement program – – Top-level buy-in, Mid-level leaders held accountable, Workers empowered Beware superficially applied, under-resourced “quality programs, ” TQM Standardized Training, Common Language, Common Tools & Metrics Encourage culture of continuous improvement, waste elimination testimonials • Operations Efficiencies (Global Operations Position) – – Centralize where gained efficiencies are smart; reallocate resources Technology (Collaboration); Leverage multiple technologies Asset Management; Maximize excess capacity of resources Supply Efficiencies; Leverage economies of scale • Collaboration (major focus for J&J with decentralized environment) – – LINK technology ties people/resources across flat/decentralized organization Communities of Practice; Leverage best practices, Web sites • Organizational Structure (Matrix) – – – Allows flexible reallocation of resources to most pressing issues Personnel will usually have many bosses…functional & mission Relationship building, advocate projects to leadership, empowered 47

Sikorsky Aircraft Secretary of Defense Corporate Fellows • A Fortune “ 500 Best Company to Work For” (UTC) – 8000 employees worldwide 2005 Revenues $2. 5 B; Operating Income $213 M Stratford, CT - main facility Shelton, CT - overhaul and repair West Palm Beach, FL – test facility Field reps worldwide – Acquisitions – – – • • • Schweitzer Keystone Helicopter Support Inc. Derco Helitech 48

Sikorsky Aircraft Secretary of Defense Corporate Fellows • Corporate Strategy: “ 2008 Vision” – – – – – Double revenues with “best in class” metrics Double aircraft programs in production Double global aircraft aftermarket solutions business Operate to Achieving Corporate Excellence (ACE) gold standard Implemented lean business processes Establish a strong US political presence - UTC Corporate led Recognized as the element of choice in “systems of systems” Develop the next generation of vertical lift Fly the President in the VH-92 • Assignment – World-wide Customer Support for Military Logistics • Canadian Maritime Helicopter Program (CH-148 Cyclone) 49

Observations ( Sikorsky) Secretary of Defense Corporate Fellows • Industry Analysis – 4000 new build helicopters by 2013; estimated revenue $73 B. • World wide competitors • Sikorsky has slight edge (CH-53 K) • Must stay viable to realize fair share of market • Corporate Execution focus Genuine desire to add value for the customer…”delight the customer” – Keep core competencies of the company in-house…outsource the rest – Caring for their people who provide the “services” – Lean Manufacturing processes – Performance Based Logistics/ In-service support – 50

Observations (Sikorsky) Secretary of Defense Corporate Fellows • Where is the Ramp up? – 200+ new build helicopters by 2008 plus 57 equivalents in O&R • Currently lacks the recourses to meet the demand – – Hire to meet workload Reallocate space to support new builds • Too focused on processes, not enough on personnel – Low morale throughout the L 4 and below labor grades • More employee incentive programs • Relevancy of ACE and 6 S – Matrix organization is dysfunctional • Restructure “dotted line” mentality – In service support / Fleet management • New ground for Sikorsky • Old methods being applied • Must sell the concept with proof 51

The Insitu Group, Inc. Secretary of Defense Corporate Fellows • Small High Tech Start Up – – – Innovative design, development, production of miniature robotic aircraft Tools for Intelligence, Surveillance, and Reconnaissance (ISR) 130 employees and growing daily – doubled in CY 05 Revenue CY 05 $28 M (projected $14 M; tripled over CY 04) CY 06 estimate $48 - 60 M Washington State Tech Fast 50 recipient; National Tech Fast 500 recipient • Corporate Strategy: – – – Promote growth and long-term viability – evolve improved product Provide option for investors to get Return On Investment (ROI) Create opportunities to grow/maintain/create barriers to entry Technology investment and business development • Assignment: Chief of Staff and Director, Constraint Task Forces 52

Observations (Insitu) Secretary of Defense Corporate Fellows • Innovation is their essence …major investment in recruiting and hiring • Employees are driven, motivated, proud…no one watches the clock • Leadership is comparable to best I have seen in 22 yrs of service – Caring, disciplined, focused, competent • Employees are members of the organization, they don’t just work here – – Part of the team Similar to military organization • Start Up’s can be key in revitalizing poor rural area – Generating new congressional support • Dynamic environment – – Working hard to capitalize on successes Scaling operations to meet demand…with the associated growing pains In the middle of the 3 rd round of investment funding Preparing for future business options, e. g. reevaluating Boeing alliance 53

Recommendations (Insitu) Secretary of Defense Corporate Fellows • Disruptive Technology – minimizing the “Acquisition Community Virus” – How can DOD effectively and efficiently absorb new technology? – How can DOD learn to take advantage of disruptive technologies? – Faster, better, less expensively Address current and projected requirements How can DOD take advantage of the benefits of small tech start-up’s? Agility Responsiveness Innovation Lower costs Less adverse to risk etc… • Strategic partnerships -- getting start-up’s in the game 54

Do. D Matrix RT NO • Basic Business Unit • Build/Control Budget (“P&L”) • Task organization efficient HC OM SO UT HC OM EU CO M PA CO M CE NT CO M SO CO M ST RA TC OM TR AN S JFC COM OM Secretary of Defense Corporate Fellows Unified Combatant Commands Real Estate Logistics & Acquisition Army IT Services Navy Financial Management Air Force Depot Maintenance Human Resources Marines Agencies Services and Agencies • Hold the People Unique skill sets • Own the Resources • Train, Equip, Maintain Do. D Shared Services • • Provide the Services No Service Unique Enterprise Wide Web Based 55