Secretary of Defense Corporate Fellows Final Report Secretary

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 • Col Doug Thomas Pfizer, Inc. • Col John Zentner General Dynamics C 4 Systems • LTC(P) Dave Lee E. I. Du Pont de Nemours & Company, Inc. • LTC(P) Al Lee Caterpillar, Inc. • Lt Col Mark Baird Deutsche Bank AG • Lt. Col Bert Pridgen IBM Business Consulting Services • CDR Nigel Nurse Mc. Kinsey & Company Reston, VA New York, NY Scottsdale, AZ Richmond, VA Peoria, IL London, UK Fairfax, VA 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 t Affecting culture and operations of Do. D in future t • 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 t www. ndu. edu/sdcfp/sdcfhom. html 6

SDCFP Sponsors Secretary of Defense Corporate Fellows • 06 - Prior – 3 M, ABB, Accenture, Agilent Technologies, American Management Systems, Amgen, Boeing, Caterpillar, Cisco, CNN, Direc. TV, Du. Pont, Enron, Fed. Ex, General Dynamics, Hewlett. Packard, Honeywell, Human Genome Sciences, IBM, Insitu Group, Johnson & Johnson, Lockheed Martin, Loral, Mc. Kinsey & Co. , Mc. Donnell Douglas, Merck, Microsoft, Mobil, Netscape, Oracle, Northrop Grumman, Pfizer, Pratt & Whitney, Pricewaterhouse. Coopers, Raytheon, Sarnoff, Sears, Sikorsky, Southern Company, SRA International, Sun Microsystems, Symbol Technologies, Vertex Aerospace • 06 -07 – Caterpillar, Deutsche Bank, Du. Pont, General Dynamics, IBM, Mc. Kinsey, Microsoft, Pfizer • 07 -08 – 3 M, Athena Innovative Solutions, Amgen, Boeing, Cisco, CNN, Lockheed Martin, Oracle, SRA International 7

SDCFP Results Secretary of Defense Corporate Fellows • Program objectives fulfilled – Education t – – Do. D, individual officers, Sponsors More Sponsors than Fellows available Intra-group experience sharing t Group visits with sponsor CEO’s and senior leadership • Unique corporate experience – – – Strong corporate support Executive/operational level duty mix Mergers/restructuring t 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 – – – Sec. Def/Dep. Sec, VCJCS, Service Secretaries & Chiefs, 30+ 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…” Sec. Def 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 Do. D Secretary of Defense Corporate Fellows Internal Investment Streamlining Collaboration Web-Enabled Expertise Locator Knowledge Management Small Business Innovation Research Performance Evaluations Innovation 12

Knowledge Management (KM) Secretary of Defense Corporate Fellows • Issue – Do. D concept of Knowledge Management not mature Do. D focuses on Information Technology or Information Sharing t Reinforced by Clinger-Cohen emphasis on IT t KM more than acquisitions and architectures t – No Do. D enterprise-wide approach to KM Individual Services/Agencies have own solutions t Portals, policies, tools (Harvest Mail, Athena, Plumtree, Share. Point) t Limited membership to Defense Knowledge Online t – Synthesizing ‘knowledge’ across Do. D is hit or miss t Do. D lags behind in realizing ‘Power of 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 t Emphasis on People and Processes t – Separate IT from KM t IT (tools) supports KM (business practice) Chief Knowledge Officer role as strategist t Chief Information Officer a ‘builder’; Chief Knowledge Officer a ‘thinker’ t – Organize resources: People, Data, Experiences Common access point for company database t One portal…. one starting point…. common front end t 14

Knowledge Management (KM) Secretary of Defense Corporate Fellows • Recommendations – Define Knowledge Management for Do. D t – Implement KM practices t t – Establish focus on human sense-making Start small, but coordinate effort across Do. D Common portal using existing IT tools to access information Move faster! t Do. D first identified need for Knowledge Management in 1993 – t OUSD(AT&L) working with Library of Congress and UMASS Do. D (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 Do. D disciplined within defined parameters t – – – 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” t E-mail, IM, enhanced directories, Blogs, Wikis, open development, etc t – Blog (we. B LOG) t Web-accessible “posting” w/ability to comment; an editorial 16

Collaboration Secretary of Defense Corporate Fellows • Industry Approach (cont) – Wiki: Hawaiian for “fast” t Web-based collaborative authoring tool Theory: many authors better than a single smart author t Used to enable continual updates to a web-based document t Potential uses t – – – 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 t Promote an agile and flexible collaboration environment t 17

Web-Enabled Expertise Locator Secretary of Defense Corporate Fellows • Issue – Finding topical experts within Do. D t – – Manpower intensive; limited to local knowledge or “who you know” Do. D 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) t Voice over Internet Protocol (VOIP) telephony t Subject matter communities t Functional areas t 18

Web-Enabled Expertise Locator Secretary of Defense Corporate Fellows • Industry Approach (Cont) – Meta-data applications Who are Subject Matter Experts? t Who’s engaged in cutting edge discussions of technology, strategy, etc. t When’s the best time to contact? t What’s the preferred forum? t • Recommendations – Accelerate/enhance a single Do. D-wide GAL Enables quick, pertinent searches t Encourages collaboration across Services and agencies t – Establish policies that promote contacts within Do. D t Between Communities of Expertise (COE) 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 t Uneven rigor in demanding quantified costs and savings t – Policies implemented without evaluating workflow costs t – Unfunded mandates for field commanders IT spending viewed as a “cost, ” not “investment” t No rate of return required to invest in IT • Industry Approach – Leadership buy-in essential More than speeches and articles t Corporate systems changed to reflect desired culture change t Promotions/good assignments tied to t 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? t What savings/avoided costs are estimated with re-engineering? t What resources go “in” to get desired output after changes? t – Repeatable/measurable process required Before applying LSS, IT changes t LSS and IT can not enable a process that is different every time t “Good business processes get better, bad ones get worse with IT” t - Bill Gates • Recommendations – Make systemic changes to support culture shift 21

Small Business Innovation Research (SBIR) Secretary of Defense Corporate Fellows • Issue – Corporations not leveraged enough within SBIR program t t SBIR mandated by Congress; ~ 4% of R&D allocated Small technology firms with less than 500 employees – – t 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 t t t – I – Feasibility Study II – Development III – Commercialization Five major defense contractors have established SBIR offices t 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 t – Assist communicating successful commercialization research t – Web alone not the answer Fast Track SBIR programs into Phase II t t Provides Do. D 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 t – FY 2001 National Defense Authorization Act t – No assurance successful major weapons systems program goals will be met One third of operational ground combat vehicles unmanned by 2015 Advanced technology prize competitions are valuable tools t Accelerate development of complex and potentially disruptive technologies • Approaches – X Prizes Ansari - civilian craft carrying three person load to 100 KM altitude ($10 M) t Archon - civilian decoding of 100 human genomes 24 in 10 days ($10 M) t

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 t – – 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 t Potential dual use or commercial application t – – Complement research grants and contracts; not replace them Engage media, academia, industry, diverse enthusiasts 25

Streamlining Functions Secretary of Defense Corporate Fellows • Issue – Do. D ‘business’ operations stovepiped, with many redundancies t 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 t Eliminate silos – t Reduce complexity, time to implement, suboptimal savings – – Created by aggressive global growth, mergers, acquisitions Resulting from decentralized or ad hoc efforts Successful initiatives with maximum impact, t Comprehensive approach with management buyin and follow through 26

Streamlining Functions Secretary of Defense Corporate Fellows • Recommendations – Continue streamlining review/effort within Do. D t t t 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 Do. D business practices t t t 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? t What am I not doing well? t How do I improve? t – What Do. D does today Systems designed to promote the best and brightest (All) t Identify individual objectives for period of performance (Army, AF, MC) t Multi-purpose systems covering counselling &objectives, promotion, and performance (AF) t Mix of when reports are completed and by whom (All) t 28

Performance Evaluations Secretary of Defense Corporate Fellows • Industry Approach – – 360 degree feedback Formal feedback on areas for improvement t Feedback on ways to improve – t Use of corporate-wide web-based IT tool – – 360 degree feedback and performance evaluation e-forms More than one review during the year t – Required follow-up with follow-on reports Objectives, mid-term corrections, final evaluation Alignment of individual objectives/goals t Clearly tied to unit, division, company level objectives/missions • Recommendations – – Formalize improvement feedback with emphasis on accountability Implement 360 degree “no regret” feedback 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 Market capitalization 2006 sales Divisions t t t 71 K world-wide $293. 5 B (no debt) $45. 4 B 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 t – – 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 t Before applying technology to streamline systems • A product company at its heart – – Not a sales or services company Product stack largely IT t t – Not many off-the-shelf business solutions Much already licensed by DOD Partners can/do build business solutions on the product stack t t 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 t t – Unused training vouchers t – Collaboration tools RPC over HTTP Office training Off-the-shelf solutions to IT problems exist, available t Marginal cost due to existing enterprise agreements not pursued – • Softricity (application virtualization) Why? (a working hypothesis) – Microsoft caters to the “CIO” function t – – 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 C 4 Systems Secretary of Defense Corporate Fellows • General Dynamics a major US Defense Contractor – – – Employees 82 K world-wide 2005 sales $21. 2 B Business Sectors Combat Systems (Land systems, ordnance, armament systems) t Aerospace (Gulfstream Aircraft) t Marine Systems (Electric Boat, Bath Iron Works) t Info Systems/Tech (C 4 Systems, Advanced Info Systems, Info Tech) t • Fellowship Placement: C 4 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 (GDC 4 S) Secretary of Defense Corporate Fellows • Communicating with government problematic – Significant time/effort/money spent trying to predict t – Perception that FARs prevent necessary communication t – Especially between RFI completion and RFP due date Perception that incumbent vendors possess advantages t t – Timelines, contract scope, requirements, etc Most knowledge of requirements and contract specifics Lost bid outbriefs cite “lack of understanding” More (govt) analysis makes program cost/schedule harder to achieve t 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 t t 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 (GDC 4 S) Secretary of Defense Corporate Fellows • Organizational change a current issue – – Company growth relies upon acquisition of related companies Change in organization necessary, but difficult t t May have some similarities to Do. D 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 t – – – Weaknesses can be outsourced! Experience depth more valued than breadth Greater sophistication of solutions the result Lesson for military professional development t 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 $190 B 2006 Revenues $48. 3 B 2006 R&D Spending $7. 6 B Main business segments t t Health Care (Prescription Drugs) Animal Health • Fellowship Placement – Global Security Senior Manager t Strategic Planning t 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 t – Failure to properly integrate recent large acquisitions t – Efficiencies not realized; inefficiencies created Wall Street cautious t – Next blockbuster drug (~$20 B per yr) development halted 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 t Increase manager’s median span of control to seven employees t – Centralized services t – Consolidate operating division service providers (HR, IT, Finance) Reduce 2007 -2008 operating expenses by $2 B Sales force reductions in US and Europe t Site Closures t Total employee reduction ~10 K (9. 5%) t • Takeaways for Do. D 39

E. I. du Pont de Nemours & Company Secretary of Defense Corporate Fellows • Science company for more than 200 years – – – Employees 60 K in 75 countries 2005 Revenue $28. 4 B Five “Platforms” • • • Agriculture & Nutrition Coatings & Colors, Electronic and Communication Tech Performance Material Safety and Protection • Corporate Strategy – Launch “The New Du. Pont” transformation to a sustainable growth company Reinforce Core Values – Grow revenue at more than $1 B annually – • Safety, Environmental Stewardship, Respect for People, Ethical Values • Assignment: Personal Protection in Safety and Protection Platform 40

Observations (Du. Pont) Secretary of Defense Corporate Fellows • Employees dedicated, hard working, honest, loyal – – Most employees stay for full career Sense of duty within the Safety Platform t t We help save lives” Scientists who want to achieve the best they can • Changing retirement program to follow other companies – – 401 K 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 t t t Leveraging scope of “One Du. Pont” Work to do in communicating this vision; making it a reality CEO communicates through e-mail, town hall meetings 41

Observations (Du. Pont) Secretary of Defense Corporate Fellows • Constant focus on safety – – Every meeting begins with a safety discussion Required visitor safety briefings t – – What to do in an emergency before entering any facility “Goal is Zero” placards everywhere! Benchmark for Industry Consultants to numerous corporations t CAT CEO: “We want to be like Du. Pont for safety. ” t 42

Caterpillar, Inc. Secretary of Defense Corporate Fellows • World’s largest manufacturer of construction/mining equipment, diesel/natural gas engines, industrial gas turbines – – • Enablers – – • Employees 90, 000+ in 40 countries Sales 500+ products in 200 countries (52% foreign) 2006 Revenue $40 B #1 Dow stockholder return performer for last five years Dealers CAT Logistics CAT Financial CAT Reman Assignment: Corporate Headquarters – – – New Product Introduction/Product Quality • Strategic Area of Improvement Beyond 21 st 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 – – – $4 M+ daily investment in R&D ($1. 08 B 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 45

IBM Secretary of Defense Corporate Fellows • World’s largest IT Company Hardware, software, services –Employees 366, 000+ in 175+ countries – 2006 revenue $91. 4 B – • 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 – Pricewaterhouse. Coopers acquisition t Position in Federal/Do. D Sectors re-established • Innovation – the intersection of invention and insight – Invention t – 14 years as #1 in patent generation Insight t Focus on application of technology rather than technology itself • Harness innovation through culture of collaboration – Tools to bring cultural seams together t t W 3 On Demand Workplace – IBM’s intranet Same. Time – Instant Messaging, sharing for video, audio, documents Think Place - Repository of IBM practices, lessons learned Blue Pages – Worldwide employee information 47

Observations (IBM) Secretary of Defense Corporate Fellows • Internal “commodities” identified – – – HR • Onboarding process • Enterprise Resource Planning (ERP) Systems Travel – Software to unify disparate business process systems – Wonderfully efficient, until entering from non-std entry point • 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 Do. D purchase 48

Mc. Kinsey & Company Secretary of Defense Corporate Fellows • Strategic level management consulting – – Consultants 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 – – • ~8, 600 in 45 countries 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) 49

Observations (Mc. Kinsey) Secretary of Defense Corporate Fellows • Toyota Production System (Lean) – Text book approach t t t 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 5 S - Sift, sort, sweep, standardize, sustain Takt time - Total available time / Customer demand Overall Equipment Effectiveness (OEE) - t t – Implementation reality more Tool Box than Culture Change • Performance Management – Up or out, seven level career path t t – Six month reviews t – Step up ~ every two years Average time at the firm is 2 -3 years Actual performance and improvement areas stressed Feedback at the end of every engagement 50

Observations/Recommendations Secretary of Defense Corporate Fellows • Mc. Kinsey Way – Exacting standards t – Think Cell (Power. Point Add-in) for documentation Teams up and running in short period of time • Leadership Development is apprenticeship approach – Do. D second to none • Priorities – Client first, consultants second • Recommendations for Do. D – – – Central Lessons Learned Database for Lean and Six Sigma projects Standardize mandatory reporting with tool like Think Cell Update Fitness Report Evaluation System t t Emphasize professional accountability Emphasize performance improvement areas 51

Deutsche Bank Secretary of Defense Corporate Fellows • Leading Global Investment Bank – – Employees 68 K employees in 73 countries Market Capitalization $71 B 2005 Revenue $33. 54 B 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 t t – 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 t – – Internal controls, self assessments, key risk indicators Near miss incident data gathered in central system Actual loss ‘signatures’ correlated to near misses t 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 t – 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 54