Secretary of Defense Fellows Program 1997- 1998

1. Secretary of Defense Fellows Program 1997- 1998

2. SDFP Background • Infrastructure 2/3 of Defense Budget • Business practices reform generates savings • Savings applicable to shortfalls • Businesses outside DoD successful in: • Adapting to changing global environment • Exploiting information revolution • Structural reshaping/reorganizing • Developing innovative processes • DoD needs effective access to best business practices

3. SDFP Organization • Permanent Staff- SDSSG Director, Deputy, Admin Staff • Two officers from each Service (USMC one)- High flag/general officer potential- O-6 or O-5- Senior Service College credit • Ten months at Sponsoring Company • Group Education- Seminars- Wargames

4. SDFP Objectives • Final Report and Briefing to SecDef/Services • Business insights relevant to DoD culture/operations • Recommended process/organization changes • 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

5. SDFP Sponsors • 96- Prior • American Management Systems, CNN, CITICORPHewlett-Packard, Lockheed Martin, Loral, McDonnell Douglas, Microsoft, Oracle, Northrop Grumman, Sarnoff Labs • 97- 98 • Andersen Consulting, DIRECTV, Mobil, Northrop Grumman, Sears, Southern Company • 98- 99 • Boeing, Caterpillar, Cisco Systems, Netscape, Coopers & Lybrand, Raytheon Systems

6. SDFP Results • Program objectives fulfilled-Education, education, education - More sponsors than fellows - Inter/intra-group experience sharing • Unique corporate experiences-Strong corporate support -Executive/operational level mix-Mergers/restructuring

7. SDFP Fellows • CAPT Mark Adrick Andersen Consulting • Col Mike Marro DIRECTV • COL Larry Matthews Mobil Corporation • Col(Sel) Janet Therianos Northrop Grumman • Col(Sel) Andy Frick Sears Roebuck • CAPT Linda Nagel Southern Company

8. Andersen Consulting Secretary of Defense Fellows Program • Global Consulting Firm • 46 countries; over 53K Employees • 1997 growth 20+%; revenue $6.6B • Organization • Core Competencies • Strategy • Process • Change Management • Technology • 16 Global Market Units • Aligned with specific industries (e.g. Communications) • Cross-functional/ Industry Solution Centers

9. Andersen Consulting Secretary of Defense Fellows Program • Business integration approach • People + Process + Technology = Capability • Changes in one factor affects all others • Focus on aligning capability with strategy • Change Management • It’s a Journey • What is the destination? • Are we ready to embark? • Chart the course • Reassess along the way- change course if needed • Identify potential obstacles; manage the journey • “Rule of the Road” #1: Change is Painful!

10. Andersen Consulting Observations/Recommendations Secretary of Defense Fellows Program • Infrastructure • Extensive intranet/ Mobile Computing • World-wide access- work anywhere • Flexibility minimizes lost productivity • Virtualization • All admin/personnel mgt... functions “Paperless” • Knowledge Xchange • 6000+ databases • Access to firm’s knowledge capital • Provides forum for communities of practice

11. Andersen Consulting Observations/Recommendations Andersen Consulting Observations/Recommendations Secretary of Defense Fellows Program • Develop a clear technology vision/strategy • Ensure organization has requisite skills or • Partner/Outsource • Common standards/ protocols • A must for eCommerce • Emerging tech support solutions • eCommerce • Electronic procurement • Business training simulation tools • Human performance improvement • Networked collaboration • Workplace-of-Future • Technology Integration

12. SDFP Fellows • CAPT Mark Adrick Andersen Consulting • Col Mike Marro DIRECTV • COL Larry Matthews Mobil Corporation • Col(Sel) Janet Therianos Northrop Grumman • Col(Sel) Andy Frick Sears Roebuck • CAPT Linda Nagel Southern Company

13. DIRECTV • Fastest growing consumer electronics product in history • 3.5+ Million subscribers in 3.5 years • >1200 employees; 1997 revenue $1.1B • Direct Broadcast Satellite television • 175+ channels, all digital, 24h x 7d operations • Three geosynchronos satellites • Information Technology Department • Critical Business Systems • Data Center construction • Billing operations

14. DIRECTV Observations • “Virtual” business -- Mostly outsourced • Customer service • Hardware/retail sales • Billing/remittance • Outsourcing • Rationale: • Have agility • Gain capability • Avoid costs • Don’t outsource core competencies • Understand risks

15. DIRECTV Observations • Y2K Problem • Business & government behind • Planning focus too narrow • Best case (things will work) assumed v. worst case • Systems-level effects • Electric power & utilities • Embedded processors • Rail systems • Global financial system • Local, state & Federal governments

16. DIRECTV Recommendations • Have realistic expectations for outsourcing • Know what you need & want • Contract carefully -- Be vigilant • Be prepared to pay -- Outsourcing is not cheap • Y2K Problem • Begin scenario based planning • Look at macro systems level impacts • Assume worst case scenarios

17. SDFP Fellows • CAPT Mark Adrick Andersen Consulting • Col Mike Marro DIRECTV • COL Larry Matthews Mobil Corporation • Col(Sel) Janet Therianos Northrop Grumman • Col(Sel) Andy Frick Sears Roebuck • CAPT Linda Nagel Southern Company

18. Mobil Corporation • Global petroleum company • 125 countries; 43K employees • 1997 revenue $3.3B • Core competencies • Exploration/production • Marketing/refining • Chemicals • Major issues • Low margins/increased competition • Environment/geo-political risks • Diminishing technical skills • Aging US-centric workforce

19. Mobil CorporationObservations/Recommendations • Standard Managed Info Tech Environment • Common operating systems • Standardized hardware/software • Organizations share “best practice” processes and improvements • Single point for problem resolution • Platform for growth • Significant cost reduction

20. Mobil CorporationObservations/Recommendations • Knowledge Management • Maximizes return on intellectual capital • Levels • Deriving value from knowledge (mining) • Generating new knowledge (creation) • Continuous learning (updating) • Key components • People networks • Supporting computer technologies • Why • Limited resources • Experts leveraged

21. Mobil CorporationObservations/Recommendations • Outsourcing • No “Silver Bullet” • Enhance core competencies -- Don’t replace • Commitment and buy-in is key • Fully understand • Current status -- Don’t outsource a “mess” • Current in-house costs • Does vendor provide more effective service • Know when to say “No!” • Do what is best for organization

22. SDFP Fellows • CAPT Mark Adrick Andersen Consulting • Col Mike Marro DIRECTV • COL Larry Matthews Mobil Corporation • Col(Sel) Janet Therianos Northrop Grumman • Col(Sel) Andy Frick Sears Roebuck • CAPT Linda Nagel Southern Company

23. Northrop GrummanESSD • One of five NG major divisions • Formerly Westinghouse Defense & Electronics • Electronic Sensors & Systems Division • 11,000 employees • 200 key programs; 3500 contracts • Radar expertise forte • Corporate “Crown Jewel” • Cutting edge technology • Key components of advanced weapon systems

24. Northrop Grumman ESSD Observations/Recommendations • Post acquisition restructuring goals • Eliminate excess infrastructure • More efficient use of resources • Capitalize on embedded resources and disciplines • “Homeroom” model for achieving goals • Centralized base of operations for personnel • Develops functional skills/tools/services/processes • Administers training, career development • Manages talent pool

25. Northrop Grumman ESSD Observations/Recommendations Northrop GrummanESSDObservations/Recommendations • “Homeroom” Benefits • Standardized processes • Leveraged use of tools • Effective use of personnel • No added overhead • DoD application • Joint warfighting CINC development • Benefits • Develop/track future commanders • DoD-wide view of talent • Centralized quality control/standardized processes • Common joint commander perspective

26. Northrop Grumman ESSD Recommendations • Acquisition Reform • Progress -- Huge thumbs up • Market Pricing next step • Move from Contract Cost Pricing • Cost Pricing = rigorous, detailed accounting • After development, Pre-production, LRIP • Market Pricing = Commercial Practice • Saves $$$ • Eliminates excessive infrastructure • Government and industry

27. SDFP Fellows • CAPT Mark Adrick Andersen Consulting • Col Mike Marro DIRECTV • COL Larry Matthews Mobil Corporation • Col(Sel) Janet Therianos Northrop Grumman • Col(Sel) Andy Frick Sears Roebuck • CAPT Linda Nagel Southern Company

28. SEARS ROEBUCK & CO. Secretary of Defense Fellows Program • Large, complex, full service retailer • 3,200+ stores; 300K associates nationwide • 60+M households • Retail Industry Leader • Customer database management innovator • Sears Logistics Group • Tailored logistics solutions • Paradigm: Flow -- Don’t store • Total logistics chain visibility • Sears horizontal strengths leveraged

29. SEARS ROEBUCK & CO. Observations/Recommendations Secretary of Defense Fellows Program • Build a winning culture • Employee ownership the key! • Relate pay/benefits to business strategy • Goal sharing/performance bonuses • Admit mistakes & handle quickly • Reputation built on trust & integrity • Foster climate of innovation • Manage for long term w/ short term goals

30. SEARS ROEBUCK & CO. Observations/Recommendations Secretary of Defense Fellows Program • Strategic vision • Top-down adaptive planning • Clear concise guidance • Multiple, interwoven plans • Balanced objectives • Information systems the “glue” • Focus on meeting changing customer needs

31. SEARS ROEBUCK & CO. Observations/Recommendations Secretary of Defense Fellows Program • People • Military cannot compete w/ compensation • New paradigm needed • Vendors • Strategic partnerships, cooperative solutions • Expand outsourcing • Non-core capabilities • Technology • Apply, integrate -- Don’t chase

32. SDFP Fellows • CAPT Mark Adrick Andersen Consulting • Col Mike Marro DIRECTV • COL Larry Matthews Mobil Corporation • Col(Sel) Janet Therianos Northrop Grumman • Col(Sel) Andy Frick Sears Roebuck • CAPT Linda Nagel Southern Company

33. Southern Company • Vertically integrated holding company • Five Southeast US electric utility companies • Largest US electricity producer; most profitable • Diversified, unregulated companies (e.g. gas) • 29,000 employees • Preparation for re-regulation & competition • Acquiring generating capacity/commercial customers throughout US. • Global presence in six countries • #4 in worldwide generating capacity • Marketing and trading energy as a commodity

34. Southern Company Observations • Massive, top-down driven culture change • Shift from managing assets to satisfying customers • Attempting to quantify impact on revenue from increasing customer satisfaction • Streamlining business planning • Tighten link of company goals to budget process • Five year budget, three year emphasis

35. Southern Company Observations • High emphasis on shared goals tied to pay • Tighten link of company goals to individual performance, evaluation and compensation • Link improvement in customer satisfaction to pay via incentives • Implied contract with employees re-written • No longer “job for life” • Must be flexible • job description • location • hours

36. Southern CompanyRecommendations • Reward TEAMWORK, not just individual performance • “Family of performers,” not “family for life” • Review processes, don’t just automate • “Shared services” for common processes • Travel, personnel, C4I • Don’t duplicate management at both Services and DoD level • Outsource very carefully

37. SDFP Common Observations/Recommendations • Y2K Problem • Primes OK; Subs and Overseas way behind • Legal liability a growing roadblock • Major disruptions likely; contingencies required • R & D • Critical to longevity • $$$ fenced • Innovation • Risks taken • Failed experiments expected • Not career threatening

38. SDFP Common Observations/Recommendations • Change management plan a must • Determine actual processes first • Educate and empower employees in changes • Multi-year process; leadership continuity critical • Incentives • An absolute for change • Fear not enough; benefits must be shared • Internal Organization • Flexible/dynamic structure • Collaboration/Teaming • Info tech the enabler

39. SDFP Common Observations/Recommendations • Information Technology • Lease to maintain state of the art • Enterprise-wide architectures/protocols a must • Enabler for common admin function processes • Paperless/deskless/virtual when sensible • Strategic Planning/Vision • Topdown, not bottom up • Fiscal Planning • 18-36 months max

40. SDFP Common Observations/Recommendations • Outsourcing • Determine core business key - don’t outsource • Demographic imperatives • Workforce shortage • Industry increasingly forced to educate • Growing competition with military for skills • Partnerships/Teaming • Trust, sharing -- Not adversarial • Culture • High employee value compensated