Secretary of Defense Fellows Program FINAL REPORT of

Secretary of Defense Fellows Program FINAL REPORT of the Secretary of Defense Fellows Program 1998 - 1999

Agenda Secretary of Defense Fellows Program l l l l Background Objective Organization Sponsors Results Common Observations & Recommendations Individual Presentations 2

Background Secretary of Defense Fellows Program l SECDEF concerns for future Service leaders – – – Open to organizational and operational change Recognize opportunities made possible by info tech Appreciate resulting revolutionary changes underway l l l 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 3

Background Secretary of Defense Fellows Program l Infrastructure is 2/3 of Defense Budget – – l Business practice reforms generate savings Savings applicable to modernization shortfalls Do. D needs effective access to best executive level business practices – – – – Strategic Planning Organization Change Management Human Resources Information Technology Globalization Outsourcing 4

Objectives Secretary of Defense Fellows Program l Build a cadre of future leaders who: – – – l 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 Sec. Def, others – – Business insights relevant to Do. D culture/operations Recommended process/organization changes 5

Organization Secretary of Defense Fellows Program l Two officers from each Service (USMC one) – – – l Eleven months at Sponsoring Company – l High flag/general officer potential O-6 or O-5 Senior Service College credit Three weeks orientation Report and Briefings directly to Sec. Def – – Business insights relevant to Do. D culture/operations Recommended process/organization changes 6

Sponsors Secretary of Defense Fellows Program l 98 - Prior – l 1998 - 99 – – l American Management Systems, Andersen Consulting, CNN, CITICORP, Direc. TV, Hewlett-Packard, Loral, Lockheed Martin, Mc. Donnell Douglas, Microsoft, Mobil, Oracle, Northrop Grumman, Sarnoff Labs, Sears, Southern Co. Boeing, Caterpillar, Cisco Systems, Netscape, Pricewaterhouse. Coopers, Raytheon Systems, Year of transitions 1999 - 00 – CITIGROUP, FEDEX, Lockheed Martin, Mc. Kinsey & Co. , Sarnoff Corp. , Sun Microsystems 7

Results Secretary of Defense Fellows Program l Program objectives fulfilled – – – l Education, education More sponsors than fellows Inter/intra-group experience sharing Unique corporate experiences – – – Strong corporate support Executive/operational level mix Mergers/restructuring 8

1998 -1999 Fellows Secretary of Defense Fellows Program l Lt Col Joanne Guretsky The Boeing Company Seattle, WA l COL Steve Holtman Caterpillar, Inc. Peoria, IL l CDR Cathy Thomas Cisco Systems, Inc. San Jose, CA l Lt Col Frank Brooks Netscape Communications Mountain View, CA l Lt. Col Mike Strain Pricewaterhouse. Coopers Fairfax, VA l Lt Col Phil Mc. Daniel Raytheon Systems Co. Garland, TX 9

Common Observations/Recommendations Secretary of Defense Fellows Program l Operational Change l Organizational Change l Transformation l Service and Do. D Implications 10

Observations & Recommendations Secretary of Defense Fellows Program l Internal Organization – Agility the single most important attribute l l – Customer focused, responsive l – Satisfaction a factor in annual evaluations, compensation Automated shared support services (pay, travel, legal, IT, etc. ) l – Flexible, task organized, not hierarchical Decision-making decentralized Single point access by user Active Top Level Leadership l l No transformation without it Role in strategic planning proportional to change magnitude 11

Observations & Recommendations Secretary of Defense Fellows Program l Information Technology – Full implementation a strategic level leadership issue – Common Operating Environment for architecture/protocols l – – CIO must have power/$$ to enforce Seamless Do. D-wide Intranet access needed Professionalize systems admin in Do. D - not a collateral duty 12

Observations & Recommendations Secretary of Defense Fellows Program l Information Technology (cont. ) – Fully utilize high tech collaboration potential throughout Do. D l l l – Lease vs buy l – Best practices in accessible archives Video/chat meetings and decision-making forums On-line professional news & education, customer presentations Leading edge or rapidly changing requirements = lease Do. D requires Enterprise Resource Planning (ERP) systems 13

Observations & Recommendations Secretary of Defense Fellows Program l Enterprise Resource Planning (ERP) Systems – All functions (manufacturing, finance, HR, etc. ) linked l l l – Integrated software Comprehensive data Single point inputs All processes evaluated and redesigned as required l l Cannot overlay on current processes Significant time, effort, transformation leadership required – Significant savings in $$, manpower, time – Available commercially or custom developed l Commercial: SAP, People. Soft, Oracle, J. D. Edwards 14

Observations & Recommendations Secretary of Defense Fellows Program l Human Resources – – New trend within industry/workforce l Mutually beneficial partnership - not a job for life Workforce shortage at all levels l l – Do. D must re-think paradigms that limit agility to fill gaps l l – People must be treated like people HR programs/incentives a must to recruit/retain Only growing military personnel bottom up from within No lateral appointment/enlistment to fill emergent needs HR is a profession, not a collateral duty l Major organizational segment or core competency 15

Observations & Recommendations Secretary of Defense Fellows Program l Recruit/Retain Incentives – Do. D must adapt to compete – Total package is critical - NOT JUST PAY – "One size fits one" - unique incentive combinations l l l Job Enrichment State of the art equipment User friendly, competitive health plan Work @ home an alternative Flex time working hours Significant compensation above basic pay for performance 16

Observations & Recommendations Secretary of Defense Fellows Program l Partnerships/Teaming – – l TRUST Greater access to information for friends (business, allies) Long term, not constantly re-competed Must be win-win Globalization – – Tech transfer approval process inconsistent and glacial New process needed for deciding what to protect 17

Observations & Recommendations Secretary of Defense Fellows Program l Strategic Planning – Horizon 1 - 5 years out l – l Rapid pace of change + agility makes longer range passé Broad and general Detailed Fiscal Planning – – – 12 -24 months out max 90 days to build/approve next year’s budget Financial reviews throughout year l $$ moved at business unit level – l No “color” of money within business unit Savings plowed back, not taken away 18

Observations & Recommendations Secretary of Defense Fellows Program l Outsourcing – Determining real core competencies is key l l – – – l Don’t outsource Core competencies may change Activities not just organizations Incentivize performance Partnership is an alternative Y 2 K Problem – – High Awareness, but no silver bullets or new surprises Subcontractor tiers and overseas still a concern Configuration freeze dates set; some already thawing Impetus to complete projects, replace systems 19

1998 -1999 Fellows Secretary of Defense Fellows Program l Lt Col Joanne Guretsky The Boeing Company Seattle, WA l COL Steve Holtman Caterpillar, Inc. Peoria, IL l CDR Cathy Thomas Cisco Systems, Inc. San Jose, CA l Lt Col Frank Brooks Netscape Communications Mountain View, CA l Lt. Col Mike Strain Pricewaterhouse. Coopers Fairfax, VA l Lt Col Phil Mc. Daniel Raytheon Systems Co. Garland, TX 20

The Boeing Company Secretary of Defense Fellows Program l Largest aerospace company in the world l Nation’s leading exporter l Largest NASA contractor l Merged with Mc. Donnell Douglas in 1997 – Re-organization/downsizing continuing 21

Boeing Observations/Recommendations Secretary of Defense Fellows Program l Enhance communication throughout Do. D – – – l “Design anywhere” Increase use of teleconferences/computer chat sessions/ computer video Establish virtual offices Cost consciousness throughout Do. D – – Raise awareness through the web, PME, periodicals, media Not just finance personnel - involve operators 22

Boeing Observations/Recommendations Secretary of Defense Fellows Program l Further implement lean/shared services – l Eliminate service-unique forms Enhance maintenance and safety – – Electronic technical/safety updates Improve accessibility of web documents Increase computerized maintenance forecasting “Push-type” maintenance - parts ready on arrival 23

Boeing Observations/Recommendations Secretary of Defense Fellows Program l Commonality/enterprise solutions – – Greater commonality and Civil Military Integration Explore enterprise solutions for contingency ops l l Flexible, tailorable force packages Logistics planning Cost information Spread and implement best practices – – Formalize process to ensure routine implementation Improve Joint Uniform Lessons Learned System (JULLS) 24

Boeing Observations/Recommendations Secretary of Defense Fellows Program l People – – Communicate concern and professional values The military profession is a service l NOT a “nine-to-five” job – Take care of people – Continue to work OPTEMPO – Evaluate specialties l l Lifetime career fields (e. g. career pilots) “Up-or-out” policy 25

Caterpillar Secretary of Defense Fellows Program l l Heart of Illinois - Peoria World’s largest producer of: – – – l l l Construction equipment Mining equipment Natural gas engines Industrial gas turbines Diesel engines 2+ million products in service today 65, 000+ employees plus 197 dealers worldwide 1998 sales $20. 89 B; profits $1. 51 B 26

Caterpillar Observations/Recommendations Secretary of Defense Fellows Program The Journey Continues l Corporate change – – l l Communication challenges Strategic planning – – l Hierarchical to business units Very few general offices At business unit level Near term focus E-commerce eventually 27

Caterpillar Observations/Recommendations Secretary of Defense Fellows Program Corporate Drivers l l Total customer focus Product differentiation Life cycle value Professional corporate culture – – – Trust Quality Positive work environment Compensation Community involvement 28

Caterpillar Observations/Recommendations Secretary of Defense Fellows Program Family Jewels l l l Caterpillar parts distribution system Integrated dealer network Diagnostics and prognostics Single parts data base 99. 72% same day shipment KEEP ‘EM RUNNING 29

Cisco Systems Secretary of Defense Fellows Program l 85% of total Internet hardware/software – 200 offices, 55 countries, 17, 400 personnel l 1998 revenues $8. 5 B, growth 30 -35% per year l Networked company – – – Net a conduit to employees, partners, customers Employer/employees interdependent Virtual workplaces (office, home, on the road) Speed, agility in decision-making, execution enabled Costs avoided 30

Cisco Systems Observations/Recommendations Secretary of Defense Fellows Program l Hiring and retaining top people – – – l Aggressive, multi-faceted recruiting Varied, responsive programs, services, virtual workplace Compensation, recognition, rewards by line managers Leading edge technology, training No one retires from Cisco Do. D must adapt to compete – – Flexible incentives packaging (“one size fits one” not “all”) Line manager tools for on the spot recognition/reward Options for tapping expertise without owning it Worry less about retention, more how to accommodate turnover 31

Cisco Systems Observations/Recommendations Secretary of Defense Fellows Program l Information Technology – 6% of personnel spend 3. 5+% of revenue – 80% client funded; growth 1. 5 times the business – Hardware/software standardization l l l Based on industry open solutions Reduced training costs, costs of ownership More time for development of new capabilities Faster reaction to business change Allows Cisco to carry a bigger stick; Do. D could too 32

Cisco Systems Observations/Recommendations Secretary of Defense Fellows Program l Outsourcing/partnering – Everything that’s not a core competency l l l – Allocate headcount to core competencies Base on trust, long term commitment, Win-Win Partner in one venture, compete in another Implications for Do. D l l l Narrower, more adaptive core competency definition Outsource more aggressively Explore partnering alternative opportunities 33

Netscape Communications Corp Secretary of Defense Fellows Program l Fastest growing software company in history – – – l Product evolution – – – l Apr 94 Founded as Mosaic Communications Aug 95 IPO announced Oct 96 First $100 M Qtr Apr 94 Apr 96 Dec 96 Sept 97 Jan 98 Mar 99 Navigator internet browser and servers E-commerce software Bundled internet tools (Communicator) Netcenter portal (website search engine) Browser computer code made FREE Netscape bought by AOL Future market – Online sales projection: $327 billion by 2002 34

Netscape Observations Secretary of Defense Fellows Program l Flexible management style in Internet Time – – – l Decisions pushed down to lowest levels Reports/red tape minimized New ideas are test bedded - failure does not end a career Outsourcing – Internal processes l – Increase operating efficiencies; decrease operating costs External processes l Increase revenue opportunities Partnering: Meet time to market constraints Globalization: Open overseas markets – – 35

Netscape Observations Secretary of Defense Fellows Program l Human Resources – – Large number and variety of programs for a small firm Centrally managed, cohesively focused on corporate strategy, maintains company culture “One size fits one” multiple incentives philosophy Broad range of management tools l l l Tailored rewards Revenue based bonuses Hi-tech collaboration – Corporate culture - information sharing is vital Online interactive presentations – Company forums and newsgroups – 36

Netscape Recommendations Secretary of Defense Fellows Program l Human Resources – – – l l Reorganize HR programs under one chain of command Differentiate pay scale based on skill code Tie bonus to individual performance Improve technical currency of Do. D support corps – Introduce specialty tracks at each level of PME – Provide more information exchange with industry Create “Reverse Reservists” – – Co-sponsor vocational training for companies Selectively contract middle management to fill gaps 37

Pricewaterhouse. Coopers Secretary of Defense Fellows Program l Global professional services firm – – Merger of Price Waterhouse & Coopers & Lybrand 152 countries; over 145 K employees • 61 st largest employer in the world – l 1998 growth 20+%; revenue $15. 3 B Organization – – Matrix organization • Geography - 4 regions • Industry - 5 sectors • Lines of Service (LOS) - 6 lines Goes to market by industry, draws expertise from LOS 38

Pricewaterhouse. Coopers Observations/Recommendations Secretary of Defense Fellows Program l Knowledge Management – – – l Intellectual capital the currency of a knowledge economy Ability to create/maintain/find information quickly Use of Intranet/Extranet facilitates information flow Common Operating Environment (COE) People are KEY -- IT structure supports people Enterprise Resource Planning (ERP) Systems – – Leverages IT structure Maximizes information utility; minimizes info cost Industry experiences 30 -100% ROI Do. D can benefit from ERP’s • CINCPACFLT Solution Provider Initiative 39

Pricewaterhouse. Coopers Observations/Recommendations Secretary of Defense Fellows Program l Agility – – – l Ability to reinvent organization to meet market demands Ability to move funds as required Maximizes IT structure/knowledge base Decentralized decision-making/budget responsibilities Do. D is NOT agile Simulation – Industry uses more often than pilot programs Do. D favors • Cheaper, risk free, doesn’t disrupt current operations – – • Greater ability to generate data for decision-making “What if” scenario capability Applicable at all levels, machine to network 40

Pricewaterhouse. Coopers Observations/Recommendations Secretary of Defense Fellows Program l Do. D expects support for pre-determined positions – – – l Consulting firms supposedly hired to research problems/recommend solutions Not looking for best practices/solutions Waste of Do. D time and money Human Resources – – “One size fits all” approach doesn’t work Industry utilizing “one size fits one” approach Review policies for “up-or-out, ” entry level only accessions, etc. Single point access by user to all support services 41

Raytheon Systems Secretary of Defense Fellows Program l Raytheon Company – – – l One of the “Big 3” defense contractors $20 B in yearly revenue Global company, expanding internationally Company in transition – – – Unique merger scenario Building an entirely new company Period of great turmoil which is not over 42

Raytheon Systems Observations/Recommendations Secretary of Defense Fellows Program l Internal organization – Shared services for pay, travel, legal, HR, etc. l – Decentralization l l – Matrixed at each level Goal: “Act with the agility of a small company” Push down authority and responsibility Do. D does this somewhat, but still needs: l l l More sharing for support functions Less Service-specific functions Greater use of IT 43

Raytheon Systems Observations/Recommendations Secretary of Defense Fellows Program l Information Technology – Internet for general info and contacts – Extensive Intranet l l l “Virtual” company in the making Sharing information, employee communication Business is executed over the web – – – Personnel functions Engineering Enterprise Resource Planning l l Determining total costs Necessary to determine how to cut costs 44

Raytheon Systems Recommendations Secretary of Defense Fellows Program l Information Technology – Do. D needs to: l Expand Internet/Intranet use - not restrict – l Implement Enterprise Resource Planning programs – – l Especially Intranet Can’t fix practices if you don’t know what’s broken Greater visibility into spending; what things really cost Greater management oversight of programs Closer integration with contractors possible Mandate and enforce common operating systems – – Greater interoperability Reduced costs through large buys 45

Raytheon Systems Observations/Recommendations Secretary of Defense Fellows Program l Technology transfer 1. Globalization has increased transfer issues 2. Multi-national companies have added new issues l l Foreign ownership of US companies US firms integrating foreign components 3. Current system is slow and inconsistent 4. Do. D must define technologies to protect; release the rest 5. Streamline request system l Paperless 46