Final Report Secretary of Defense Corporate Fellowship Program 2006 - 2007

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2. 2 2006-2007 Fellows Col Jim Slife Microsoft Corporation Reston, VA Col Doug Thomas Pfizer, Inc. New York, NY Col John Zentner General Dynamics C4 Systems Scottsdale, AZ LTC(P) Dave Lee E.I. Du Pont de Nemours & Company, Inc. Richmond, VA LTC(P) Al Lee Caterpillar, Inc. Peoria, IL Lt Col Mark Baird Deutsche Bank AG London, UK LtCol Bert Pridgen IBM Business Consulting Services  Fairfax, VA CDR Nigel Nurse McKinsey & Company Irvine, CA

3. 3 Agenda Background Common Findings/Recommendations Individual Experiences (FYI) (Background slides only when required) Some brief background on the program for those who have never received a brief before. Followed by the most important part, the officer’s recommendations. Individual experiences are an up-date of our mid-term brief and we usually don’t have time to get there.(Background slides only when required) Some brief background on the program for those who have never received a brief before. Followed by the most important part, the officer’s recommendations. Individual experiences are an up-date of our mid-term brief and we usually don’t have time to get there.

4. 4 SDCFP Background 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 DoD in future Businesses outside DoD successful in: Adapting to changing global environment Exploiting information revolution Structural reshaping/reorganizing Developing innovative processes SECDEF was Secretary Perry, although AF Secretary Jim Roche will tell you that he was the godfather of the program that put the bug in everyone’s ear. Perry’s concern was that career officers didn’t know what they didn’t know. Especially officers who had been operational their whole careers and had very little, if any interaction with the commercial world. While certainly not perfect, the business world was better and faster in adopting new technologies, especially IT, and new organizations and processes. And more open to change. This program differs from previously existing Service Training with Industry programs in several respects: Officers are more senior and the focus is on senior level leadership/management. How the generals and admirals of industry get their companies to adopt new processes and organizations. How they get them to change. Officers are from all branches/operational specialties, not just from the support side. Technology is of interest, but secondary to leadership and change management. SECDEF was Secretary Perry, although AF Secretary Jim Roche will tell you that he was the godfather of the program that put the bug in everyone’s ear. Perry’s concern was that career officers didn’t know what they didn’t know. Especially officers who had been operational their whole careers and had very little, if any interaction with the commercial world. While certainly not perfect, the business world was better and faster in adopting new technologies, especially IT, and new organizations and processes. And more open to change. This program differs from previously existing Service Training with Industry programs in several respects: Officers are more senior and the focus is on senior level leadership/management. How the generals and admirals of industry get their companies to adopt new processes and organizations. How they get them to change. Officers are from all branches/operational specialties, not just from the support side. Technology is of interest, but secondary to leadership and change management.

5. 5 SDCFP Background DoD 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 THE SECDEF FELLOWS PROGRAM BEGAN WITH A TWO-FOLD REALIZATION AT HIGH LEVELS WITHIN DOD THAT: WE WERE ENTERING AN ERA OF REVOLUTIONARY CHANGE IN BOTH THE OPERATIONS AND BUSINESS OF THE MILITARY, FUELED BY THE POSSIBILITIES OF INFORMATION AGE TECHNOLOGY. THE CIVILIAN SECTOR WAS SUCCESSFULLY ADAPTING TO AND EXPLOITING THE INFORMATION REVOLUTION BY RESHAPING THEMSELVES MORE RAPIDLY THAN DOD THE SECDEF FELLOWS PROGRAM BEGAN WITH A TWO-FOLD REALIZATION AT HIGH LEVELS WITHIN DOD THAT: WE WERE ENTERING AN ERA OF REVOLUTIONARY CHANGE IN BOTH THE OPERATIONS AND BUSINESS OF THE MILITARY, FUELED BY THE POSSIBILITIES OF INFORMATION AGE TECHNOLOGY. THE CIVILIAN SECTOR WAS SUCCESSFULLY ADAPTING TO AND EXPLOITING THE INFORMATION REVOLUTION BY RESHAPING THEMSELVES MORE RAPIDLY THAN DOD

6. 6 SDCFP Organization 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 DoD 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 www.ndu.edu/sdcfp/sdcfhom.html

7. 7 SDCFP Sponsors 06 - Prior 3M, ABB, Accenture, Agilent Technologies, American Management Systems, Amgen, Boeing, Caterpillar, Cisco, CNN, DirecTV, DuPont, Enron, FedEx, General Dynamics, Hewlett-Packard, Honeywell, Human Genome Sciences, IBM, Insitu Group, Johnson & Johnson, Lockheed Martin, Loral, McKinsey & Co., McDonnell Douglas, Merck, Microsoft, Mobil, Netscape, Oracle, Northrop Grumman, Pfizer, Pratt & Whitney, PricewaterhouseCoopers, Raytheon, Sarnoff, Sears, Sikorsky, Southern Company, SRA International, Sun Microsystems, Symbol Technologies, Vertex Aerospace 06-07 Caterpillar, Deutsche Bank, DuPont, General Dynamics, IBM, McKinsey, Microsoft, Pfizer 07-08 3M, Athena Innovative Solutions, Amgen, Boeing, Cisco, CNN, Lockheed Martin, Oracle, SRA International Sponsoring companies where we’ve been before, where we are this year and where we’re going next, beginning this summer. A broad range of business areas, each company a leader in its field. Only one defense contractor per year. Sponsoring companies where we’ve been before, where we are this year and where we’re going next, beginning this summer. A broad range of business areas, each company a leader in its field. Only one defense contractor per year.

8. 8 SDCFP Results Program objectives fulfilled Education DoD, 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

9. 9 SDCFP Products 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 SecDef/DepSec, VCJCS, Service Secretaries & Chiefs, 30+ others Business insights relevant to DoD culture/operations Recommended process/organization changes The short-term product – today’s briefing. Given to the senior officials of OSD and the Services that are in positions to take the ideas and act on them. Starting this year inputs to the Business Initiatives Council also. We found that the feedback during these briefings provides a lot of education to the briefers as well. The realities of DoD. The problems faced by leaders trying to implement these or similar recommendations. The long term product and, in Mr. Marshall’s view the real benefit of the program. Better officers who will make better decisions throughout the remainder of their careers and act as agents of change. The short-term product – today’s briefing. Given to the senior officials of OSD and the Services that are in positions to take the ideas and act on them. Starting this year inputs to the Business Initiatives Council also. We found that the feedback during these briefings provides a lot of education to the briefers as well. The realities of DoD. The problems faced by leaders trying to implement these or similar recommendations. The long term product and, in Mr. Marshall’s view the real benefit of the program. Better officers who will make better decisions throughout the remainder of their careers and act as agents of change.

10. 10  “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…” SecDef Remarks National Defense University 31 January 2002

11. 11 Agenda Background Common Findings/Recommendations Individual Experiences (if required) (Background slides only when required) Some brief background on the program for those who have never received a brief before. Followed by the most important part, the officer’s recommendations. Individual experiences are an up-date of our mid-term brief and we usually don’t have time to get there.(Background slides only when required) Some brief background on the program for those who have never received a brief before. Followed by the most important part, the officer’s recommendations. Individual experiences are an up-date of our mid-term brief and we usually don’t have time to get there.

12. 12 Take-Aways for DoD

13. 13 Knowledge Management (KM) Issue DoD concept of Knowledge Management not mature DoD focuses on Information Technology or Information Sharing Reinforced by Clinger-Cohen emphasis on IT KM more than acquisitions and architectures No DoD enterprise-wide approach to KM Individual Services/Agencies have own solutions Portals, policies, tools (Harvest Mail, Athena, Plumtree, SharePoint) Limited membership to Defense Knowledge Online Synthesizing ‘knowledge’ across DoD is hit or miss DoD lags behind in realizing ‘Power of Information’ Access to information fire-walled Sharing information cumbersome Collaboration stuck in 20th Century mindset Duplication of effort is widespread Policy: Public law, Executive Branch, OSD, Services, Commands, etc. Research data: Agencies, Services, Repositories, lessons learned, etc.

14. 14 Knowledge Management (KM) Industry Approach Define the concept: Achieving breakthrough business performance through the synergy of people, processes, and technology Emphasis on People and Processes Separate IT from KM IT (tools) supports KM (business practice) Chief Knowledge Officer role as strategist Chief Information Officer a ‘builder’; Chief Knowledge Officer a ‘thinker’ Organize resources: People, Data, Experiences Common access point for company database One portal….one starting point….common front end Place resources in context: how do humans relate to it? Metadata standards and expectations Automated taxonomy generation Sociologists and human centered design TiVo knows what I like…why not my office network?

15. 15 Knowledge Management (KM) Recommendations Define Knowledge Management for DoD Establish focus on human sense-making Implement KM practices Start small, but coordinate effort across DoD Common portal using existing IT tools to access information Move faster! DoD first identified need for Knowledge Management in 1993 OUSD(AT&L) working with Library of Congress and UMASS DoD (CIO) 4 May 07 “Information Sharing Strategy” policy a start Doesn’t focus enough on human element

16. 16 Collaboration Issue Collaboration in DoD disciplined within defined parameters 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” E-mail, IM, enhanced directories, Blogs, Wikis, open development, etc Blog (weB LOG) Web-accessible “posting” w/ability to comment; an editorial Focused around communities of interest Cuts back on “spam” e-mail; especially with “push” feeds Leaders/Subject Matter Experts (SME) use to communicate broadly

17. 17 Collaboration Industry Approach (cont) Wiki: Hawaiian for “fast” Web-based collaborative authoring tool Theory: many authors better than a single smart author Used to enable continual updates to a web-based document Potential uses 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 Promote an agile and flexible collaboration environment Maintain information security and information assurance disciplines Professional standards of conduct Exploit already licensed user interface enabling technology

18. 18 Web-Enabled Expertise Locator Issue Finding topical experts within DoD Manpower intensive; limited to local knowledge or “who you know” DoD 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) Voice over Internet Protocol (VOIP) telephony Subject matter communities Functional areas Publications Cross community discussions; related Blog’s and Wiki’s Estimate 2 hours saved per employee per week on contact search time due to in design and integration with communication tools.Estimate 2 hours saved per employee per week on contact search time due to in design and integration with communication tools.

19. 19 Web-Enabled Expertise Locator Industry Approach (Cont) Meta-data applications Who are Subject Matter Experts? Who’s engaged in cutting edge discussions of technology, strategy, etc. When’s the best time to contact? What’s the preferred forum? Recommendations Accelerate/enhance a single DoD-wide GAL Enables quick, pertinent searches Encourages collaboration across Services and agencies Establish policies that promote contacts within DoD Between Communities of Expertise (COE) Across Services/agencies Merge communication and information technologies Enhance the tools and leverage the network Estimate 2 hours saved per employee per week on contact search time due to in design and integration with communication tools.Estimate 2 hours saved per employee per week on contact search time due to in design and integration with communication tools.

20. 20 Internal Business Investments Issue Lean/Six Sigma (LSS) seen as a fad, not culture change No wide-scale training Uneven rigor in demanding quantified costs and savings Policies implemented without evaluating workflow costs Unfunded mandates for field commanders IT spending viewed as a “cost,” not “investment” No rate of return required to invest in IT Industry Approach Leadership buy-in essential More than speeches and articles Corporate systems changed to reflect desired culture change Promotions/good assignments tied to participation & success New policies have workflow offset or accepted as a plus-up

21. 21 Internal Business Investments Industry Approach (cont) Accurate cost accounting and estimation system What resources go “in” to get desired output? What savings/avoided costs are estimated with re-engineering? What resources go “in” to get desired output after changes? Repeatable/measurable process required Before applying LSS, IT changes LSS and IT can not enable a process that is different every time “Good business processes get better, bad ones get worse with IT” - Bill Gates Recommendations Make systemic changes to support culture shift Require workflow & cost analysis for new policies, regulations Continue business transformation to more accurate costing Focus on, publicize cases with re-use potential Demand process discipline before investing in re-engineering

22. 22 Small Business Innovation Research (SBIR) Issue Corporations not leveraged enough within SBIR program SBIR mandated by Congress; ~ 4% of R&D allocated Small technology firms with less than 500 employees 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 I – Feasibility Study II – Development III – Commercialization Five major defense contractors have established SBIR offices Leverages the benefits of fast tracking a SBIR company 1982 - Congress established the SBIR Program to assure representation of small businesses in Federal Research and Development (R&D). 2000 - The Program was enhanced by ACT HR 5667 2000 and reauthorized until 2008. 2006 - The 2006 National Defense Authorization Act encouraged commercialization of SBIR technologies through the authorization of a “Commercialization Pilot Program (CPP),” to accelerate the transition of SBIR technologies, products, and services to Phase III, including the acquisition process. Phase I – Feasibility Study Small businesses will receive up to $70,000 for a six month project Phase II – Development Small business will receive up to $730,000 over a two-year period Outside investment up to $195,000 can help a company “Fast Track” Phase II Phase III – Commercialization No SBIR funding is available in Phase III Reports identifying issues: GAO 06-883: Stronger Practices Needed to Improve DOD Technology Transition Processes EXPECTMORE.GOV lists SBIR as a program that is not performing to expectations The CPP will: 1) assess and identify SBIR projects and companies with high transition potential that meet high priority requirements; 2) provide market research and business plan development; 3) match SBIR companies to customers and facilitate collaboration; 4) prepare detailed technology transition plans and agreements; 5) make recommendations and facilitate additional funding for select SBIR projects that meet the criteria identified above; and 6) track metrics and measure results for the SBIR projects within the CPP. Army lost the opportunity to have an additional $195K committed to R&D Result: Project canceled, Army lost $70K in R&D Other companies that completed Phase II felt abandoned by the Army in Phase III 1982 - Congress established the SBIR Program to assure representation of small businesses in Federal Research and Development (R&D). 2000 - The Program was enhanced by ACT HR 5667 2000 and reauthorized until 2008. 2006 - The 2006 National Defense Authorization Act encouraged commercialization of SBIR technologies through the authorization of a “Commercialization Pilot Program (CPP),” to accelerate the transition of SBIR technologies, products, and services to Phase III, including the acquisition process. Phase I – Feasibility Study Small businesses will receive up to $70,000 for a six month project Phase II – Development Small business will receive up to $730,000 over a two-year period Outside investment up to $195,000 can help a company “Fast Track” Phase II Phase III – Commercialization No SBIR funding is available in Phase III Reports identifying issues: GAO 06-883: Stronger Practices Needed to Improve DOD Technology Transition Processes EXPECTMORE.GOV lists SBIR as a program that is not performing to expectations The CPP will: 1) assess and identify SBIR projects and companies with high transition potential that meet high priority requirements; 2) provide market research and business plan development; 3) match SBIR companies to customers and facilitate collaboration; 4) prepare detailed technology transition plans and agreements; 5) make recommendations and facilitate additional funding for select SBIR projects that meet the criteria identified above; and 6) track metrics and measure results for the SBIR projects within the CPP. Army lost the opportunity to have an additional $195K committed to R&D Result: Project canceled, Army lost $70K in R&D Other companies that completed Phase II felt abandoned by the Army in Phase III

23. 23 Small Business Innovation Research (SBIR) Recommendations Ensure CPP fully understood by companies with large R&D Improve process to communicate SBIR program requirements Web alone not the answer Assist communicating successful commercialization research Web alone not the answer Fast Track SBIR programs into Phase II Provides DoD with a partner having the resources to commercialize Increases R&D funding for projects by 25%

24. 24 Innovation through Prize Competitions Issues Military increasingly depends on immature complex technologies No assurance successful major weapons systems program goals will be met FY 2001 National Defense Authorization Act One third of operational ground combat vehicles unmanned by 2015 Advanced technology prize competitions are valuable tools Accelerate development of complex and potentially disruptive technologies Approaches X Prizes Ansari - civilian craft carrying three person load to 100 KM altitude ($10M) Archon - civilian decoding of 100 human genomes in 10 days ($10M) LLC - civilian craft with flight performance equal to a lunar lander ($350K) DARPA Grand Challenges Fastest autonomous vehicle completing challenging road course ($1M-$2M)) Safest autonomous operations during multi-mission, urban driving ($2M) NASA Centennial Challenges (7) Wireless power transmission ($200K) Super-strong tethers for Space Elevators ($500k) Results and Benefits of Competition 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 Allows for multiple solutions to the same technical challenge A fraction of total costs (investment is 10 to 40 times prize value) Ansari X Prize - 10 times the amount of prize winnings to compete DARPA Grand Challenges – 4-5 times in the development of the vehicles NASA Centennial Challenges - 20% of total costs Competitors are seeking near-term economic opportunities Win-win for defense and commercial sectors Engage the public, media, academia, industry and diverse enthusiasts to fully exploit prize culture characteristics Leverages commercial efficiencies Even failure provides an assessment of technology maturity levelsResults and Benefits of Competition 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 Allows for multiple solutions to the same technical challenge A fraction of total costs (investment is 10 to 40 times prize value) Ansari X Prize - 10 times the amount of prize winnings to compete DARPA Grand Challenges – 4-5 times in the development of the vehicles NASA Centennial Challenges - 20% of total costs Competitors are seeking near-term economic opportunities Win-win for defense and commercial sectors Engage the public, media, academia, industry and diverse enthusiasts to fully exploit prize culture characteristics Leverages commercial efficiencies Even failure provides an assessment of technology maturity levels

25. 25 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 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 Potential dual use or commercial application Complement research grants and contracts; not replace them Engage media, academia, industry, diverse enthusiasts Innovation through Prize Competitions

26. 26 Streamlining Functions Issue DoD ‘business’ operations stovepiped, with many redundancies 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 Eliminate silos Created by aggressive global growth, mergers, acquisitions Reduce complexity, time to implement, suboptimal savings Resulting from decentralized or ad hoc efforts Successful initiatives with maximum impact, Comprehensive approach with management buy-in and follow through Centralized governance process Centrally managed umbrella project office Highly structured tollgate/milestone processes Deutsche Bank has enjoyed explosive growth in the Investment Banking industry. Its silos are focused on different product areas, customer groups, etc, and have their own embedded support processes, IT systems, etc that support their particular product lines. As the investment banking industry has become more and more competitive, however, numbers of transactions are still increasing, but the margins are decreasing. This is forcing all banks to tighten their belts. DB has taken a fresh look at their business units and seen many redundancies, duplicative efforts, etc that it is looking to streamline under the Structured Operating Model effort. Bank management has fully bought in to the effort (a key requirement) and have established a central project office to manage the governance of the huge effort—110 projects (each a process to be consolidated/moved) in 2006, 189 in 2007. The program office has management backing and authority to enforce discipline in the process, which is governed by a formal tollgate/milestone structured transition methodology. Process discipline s also supported by a very impressive office software tool built by Sutherland, a project management company under contract to DB. This same rigor and discipline could be applied to similar efforts within DoD, which could benefit enormously from streamlining, between redundancies in the services, Joint Staff, and Office of the Secretary of Defense. As a result of the processes being moved, 1200 jobs have been relocated from high cost areas (loaded costs approximately £250K per year) that do not need to be in the client-facing hubs, in the context of the DB operating plans and client requirements, to the 3 remote hubs (loaded cost approximately £23K per year) with no dips in revenues or service to the client. DB is working to ensure personnel that might be displaced by the jobs leaving the high cost areas are moved to other positions within the Bank or reduced via normal attrition. Deutsche Bank has enjoyed explosive growth in the Investment Banking industry. Its silos are focused on different product areas, customer groups, etc, and have their own embedded support processes, IT systems, etc that support their particular product lines. As the investment banking industry has become more and more competitive, however, numbers of transactions are still increasing, but the margins are decreasing. This is forcing all banks to tighten their belts. DB has taken a fresh look at their business units and seen many redundancies, duplicative efforts, etc that it is looking to streamline under the Structured Operating Model effort. Bank management has fully bought in to the effort (a key requirement) and have established a central project office to manage the governance of the huge effort—110 projects (each a process to be consolidated/moved) in 2006, 189 in 2007. The program office has management backing and authority to enforce discipline in the process, which is governed by a formal tollgate/milestone structured transition methodology. Process discipline s also supported by a very impressive office software tool built by Sutherland, a project management company under contract to DB. This same rigor and discipline could be applied to similar efforts within DoD, which could benefit enormously from streamlining, between redundancies in the services, Joint Staff, and Office of the Secretary of Defense. As a result of the processes being moved, 1200 jobs have been relocated from high cost areas (loaded costs approximately £250K per year) that do not need to be in the client-facing hubs, in the context of the DB operating plans and client requirements, to the 3 remote hubs (loaded cost approximately £23K per year) with no dips in revenues or service to the client. DB is working to ensure personnel that might be displaced by the jobs leaving the high cost areas are moved to other positions within the Bank or reduced via normal attrition.

27. 27 Streamlining Functions Recommendations Continue streamlining review/effort within DoD 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 DoD business practices British Ministry of Defence model could provide examples Deutsche Bank’s governance model would provide benefit Take advantage of CSIS ‘Beyond Goldwater-Nichols’ effort

28. 28 Performance Evaluations Issues Performance evaluations not focused on three basic questions What am I doing well? What am I not doing well? How do I improve? What DoD does today Systems designed to promote the best and brightest (All) Identify individual objectives for period of performance (Army, AF, MC) Multi-purpose systems covering counselling &objectives, promotion, and performance (AF) Mix of when reports are completed and by whom (All) Where DoD misses the mark Objectives programs are hit or miss Systems sub-optimized to improve all levels of personnel performance Evaluations usually linked to a single evaluator Supplemental programs (objectives, counselling) have little accountability A performance evaluation should answer the three basic questions presented. Rankings, promotions, and succession planning all fall naturally if these questions are addressed on successive evaluations for the individual and his/her peers. The current Navy FITREP system, and arguably the other services also, exclusively report on individual performance and performance in comparison to an officer’s peers. What it sorely lacks are answers to the last two questions that are arguably, more important. Natural selection will always result in a small percentage of individuals who will lead performance, this will be independent of any performance reporting system. In an organization like DoD where we need to keep not only the highest performers, but performers over the entire spectrum, the performance reporting system should be more aligned to ensure personal and professional growth. Air Force has three separate forms, one for counseling and objectives setting, one for performance reporting and one for promotion. The Army has an OER that is used for both objective setting and performance reporting. The common thread between all the services is that honest feedback on an officer’s performance tends to be hit or miss, we are very good at pointing out the things that right but not so good at pointing out what needs improvement. At an organization like McKinsey and Company, quite unlike most other organizations, there is only room for the small percentage of top performers. This becomes clear when you look at the average time in the firm being under three years. McKinsey can concentrate only on these top performers but in actuality provides excellent feedback across the performance questions spectrum. Feedback includes not only what an individual is doing well but also what they are not, and what they should do to improve. As they operate in small teams, there is an intimate dynamic that results in 360 degree feedback on a daily basis through verbal reporting. By clearly identifying performance realities to it’s consultants, McKinsey sets clear performance goals that an individual can choose to meet or eventually leave the organization. The takeaway from my observations at McKinsey is that the DoD (At least in the Navy), concentrates on accomplishment reporting but should consider changing to a a more objective performance reporting system that provides feedback on both what an officer is not doing well as well as what they should do to improve on those areas. Additionally, a 360 degree reporting system should be instituted that provides feedback to the individual but that is not part of the formalized reporting system. This allows people in an officer’s command to provide direct feedback to the individual so that they can use this information for leadership development, personal, and professional growth. A performance evaluation should answer the three basic questions presented. Rankings, promotions, and succession planning all fall naturally if these questions are addressed on successive evaluations for the individual and his/her peers. The current Navy FITREP system, and arguably the other services also, exclusively report on individual performance and performance in comparison to an officer’s peers. What it sorely lacks are answers to the last two questions that are arguably, more important. Natural selection will always result in a small percentage of individuals who will lead performance, this will be independent of any performance reporting system. In an organization like DoD where we need to keep not only the highest performers, but performers over the entire spectrum, the performance reporting system should be more aligned to ensure personal and professional growth. Air Force has three separate forms, one for counseling and objectives setting, one for performance reporting and one for promotion. The Army has an OER that is used for both objective setting and performance reporting. The common thread between all the services is that honest feedback on an officer’s performance tends to be hit or miss, we are very good at pointing out the things that right but not so good at pointing out what needs improvement. At an organization like McKinsey and Company, quite unlike most other organizations, there is only room for the small percentage of top performers. This becomes clear when you look at the average time in the firm being under three years. McKinsey can concentrate only on these top performers but in actuality provides excellent feedback across the performance questions spectrum. Feedback includes not only what an individual is doing well but also what they are not, and what they should do to improve. As they operate in small teams, there is an intimate dynamic that results in 360 degree feedback on a daily basis through verbal reporting. By clearly identifying performance realities to it’s consultants, McKinsey sets clear performance goals that an individual can choose to meet or eventually leave the organization. The takeaway from my observations at McKinsey is that the DoD (At least in the Navy), concentrates on accomplishment reporting but should consider changing to a a more objective performance reporting system that provides feedback on both what an officer is not doing well as well as what they should do to improve on those areas. Additionally, a 360 degree reporting system should be instituted that provides feedback to the individual but that is not part of the formalized reporting system. This allows people in an officer’s command to provide direct feedback to the individual so that they can use this information for leadership development, personal, and professional growth.

29. 29 Performance Evaluations Industry Approach 360 degree feedback Formal feedback on areas for improvement Feedback on ways to improve Required follow-up with follow-on reports Use of corporate-wide web-based IT tool 360 degree feedback and performance evaluation e-forms More than one review during the year Objectives, mid-term corrections, final evaluation Alignment of individual objectives/goals Clearly tied to unit, division, company level objectives/missions Recommendations Formalize improvement feedback with emphasis on accountability Implement 360 degree “no regret” feedback More objective formats Top three things done well and three areas for improvement

30. 30 Agenda Background Common Findings/Recommendations Individual Experiences (FYI) (Background slides only when required) Some brief background on the program for those who have never received a brief before. Followed by the most important part, the officer’s recommendations. Individual experiences are an up-date of our mid-term brief and we usually don’t have time to get there.(Background slides only when required) Some brief background on the program for those who have never received a brief before. Followed by the most important part, the officer’s recommendations. Individual experiences are an up-date of our mid-term brief and we usually don’t have time to get there.

31. 31 Microsoft Corp World’s largest software company Employees 71K world-wide Market capitalization $293.5B (no debt) 2006 sales $45.4B Divisions 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 K-12 Education; Federal, State, Local Government; Industry Illinois State Police intelligence fusion center public-private alliance Network-Centric Operations Industry Consortium (NCOIC)

32. 32 Observations (Microsoft) Technology can solve technology, not business, problems Broken/inefficient business processes must be fixed first Before applying technology to streamline systems A product company at its heart Not a sales or services company Product stack largely IT Not many off-the-shelf business solutions Much already licensed by DOD Partners can/do build business solutions on the product stack Fraction of the cost of “Systems Integrators” Challenge to DOD…fragmented partner base

33. 33 Observations (Microsoft) Most customers do not get full software licensing value Desirable features built into products remain unused Collaboration tools RPC over HTTP Unused training vouchers Office training Off-the-shelf solutions to IT problems exist, available Marginal cost due to existing enterprise agreements not pursued Softricity (application virtualization) Why? (a working hypothesis) Microsoft caters to the “CIO” function 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

34. 34 General Dynamics C4 Systems General Dynamics a major US Defense Contractor Employees 82K world-wide 2005 sales $21.2B Business Sectors Combat Systems (Land systems, ordnance, armament systems) Aerospace (Gulfstream Aircraft) Marine Systems (Electric Boat, Bath Iron Works) Info Systems/Tech (C4 Systems, Advanced Info Systems, Info Tech) Fellowship Placement: C4 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

35. 35 Observations (GDC4S) Communicating with government problematic Significant time/effort/money spent trying to predict Timelines, contract scope, requirements, etc Perception that FARs prevent necessary communication Especially between RFI completion and RFP due date Perception that incumbent vendors possess advantages Most knowledge of requirements and contract specifics Lost bid outbriefs cite “lack of understanding” More (govt) analysis makes program cost/schedule harder to achieve 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 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

36. 36 Observations (GDC4S) Organizational change a current issue Company growth relies upon acquisition of related companies Change in organization necessary, but difficult May have some similarities to DoD 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 Weaknesses can be outsourced! Experience depth more valued than breadth Greater sophistication of solutions the result Lesson for military professional development Valuable expertise in many fields lost Systems engineering, intelligence analysis, various support fields

37. 37 Pfizer, Inc. Research Based, Global Pharmaceutical Company Employees: ~106,000 in over 90 countries Market Capitalization $190B 2006 Revenues $48.3B 2006 R&D Spending $7.6 B Main business segments Health Care (Prescription Drugs) Animal Health Fellowship Placement Global Security Senior Manager Strategic Planning

38. 38 Observations (Pfizer) 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 Next blockbuster drug (~$20B per yr) development halted Failure to properly integrate recent large acquisitions Efficiencies not realized; inefficiencies created Wall Street cautious 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

39. 39 Observations (Pfizer) The way ahead De-layering Reduce layers of management (CEO to lowest level) from 14 to 8 Increase manager’s median span of control to seven employees Centralized services Consolidate operating division service providers (HR, IT, Finance) Reduce 2007-2008 operating expenses by $2B Sales force reductions in US and Europe Site Closures Total employee reduction ~10K (9.5%) Takeaways for DoD De-layering business functions

40. 40 Boeing is still the world leader in the aerospace market. A significant point is that it is one of only 4 remaining large defense contractors in the field. Boeing has continued to evolve with the market to stay profitable. A recent restructure has succeeded in improving customer alignment. Boeing’s continued expansion into the global market, not just in sales but in company presence, is noteworthy. Boeing is still the world leader in the aerospace market. A significant point is that it is one of only 4 remaining large defense contractors in the field. Boeing has continued to evolve with the market to stay profitable. A recent restructure has succeeded in improving customer alignment. Boeing’s continued expansion into the global market, not just in sales but in company presence, is noteworthy.

41. 41 Observations (DuPont) Employees dedicated, hard working, honest, loyal Most employees stay for full career Sense of duty within the Safety Platform We help save lives” Scientists who want to achieve the best they can Changing retirement program to follow other companies 401K 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 Leveraging scope of “One DuPont” Work to do in communicating this vision; making it a reality CEO communicates through e-mail, town hall meetings Being “Big Boeing” is often an impediment in a marketplace which rewards good, fast, cheap. (Old paradigm was higher, faster, farther) The shear size and geographic bounds of the company create extensive pressures which Boeing works very hard to overcome. (operations in 26 states, 61 countries) -virtual teaming, BLC activities, VTC and net-meetings Boeing chooses to outsource many things which provide necessary items or components faster or cheaper than they could make it themselves. This allows Boeing to keep focused on it’s core competencies. Consequently, strategic partnerships and emphasis on supplier management are key to Boeing’s success. These partnerships also cross political lines both domestically and internationally. These decisions are ultimately focused on a bigger bottom line. Boeing emphasizes their competitive advantage comes from their employees and encourages involvement and empowerment to capture the intellectual capital inherent in the workforce. Boeing has also undergone a re-alignment to better integrate common businesses and improve customer focus which resulted in a $23 billion business with global military, government, and commercial customers. While they have plenty of potential to continue to grow the business in the future, the loss in the JSF competition was significant because it could eliminate Boeing from the fighter aircraft market when current contracts expire. The loss was a wake up call which helped refocus the company. They continue to push their LSI role as a market strategy to remain competitive. As a result of the merging of Space and Comm with Aircraft and Missiles, Boeing now has IDS which is guided by solid leadership. The organizational structure works well in providing customer focused units but has somewhat complex internal alignment which will take some time to smooth out operating relationships. Unmanned Systems is currently a sole provider in the UCAV market but is focused on adding value in the bigger network-centric picture. A key to the evolution of unmanned systems and network-centric architecture is the ability to develop necessary software. Future success and profitability also depends on growth in international and commercial markets.Being “Big Boeing” is often an impediment in a marketplace which rewards good, fast, cheap. (Old paradigm was higher, faster, farther) The shear size and geographic bounds of the company create extensive pressures which Boeing works very hard to overcome. (operations in 26 states, 61 countries) -virtual teaming, BLC activities, VTC and net-meetings Boeing chooses to outsource many things which provide necessary items or components faster or cheaper than they could make it themselves. This allows Boeing to keep focused on it’s core competencies. Consequently, strategic partnerships and emphasis on supplier management are key to Boeing’s success. These partnerships also cross political lines both domestically and internationally. These decisions are ultimately focused on a bigger bottom line. Boeing emphasizes their competitive advantage comes from their employees and encourages involvement and empowerment to capture the intellectual capital inherent in the workforce. Boeing has also undergone a re-alignment to better integrate common businesses and improve customer focus which resulted in a $23 billion business with global military, government, and commercial customers. While they have plenty of potential to continue to grow the business in the future, the loss in the JSF competition was significant because it could eliminate Boeing from the fighter aircraft market when current contracts expire. The loss was a wake up call which helped refocus the company. They continue to push their LSI role as a market strategy to remain competitive. As a result of the merging of Space and Comm with Aircraft and Missiles, Boeing now has IDS which is guided by solid leadership. The organizational structure works well in providing customer focused units but has somewhat complex internal alignment which will take some time to smooth out operating relationships. Unmanned Systems is currently a sole provider in the UCAV market but is focused on adding value in the bigger network-centric picture. A key to the evolution of unmanned systems and network-centric architecture is the ability to develop necessary software. Future success and profitability also depends on growth in international and commercial markets.

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

43. 43 Caterpillar, Inc. World’s largest manufacturer of construction/mining equipment, diesel/natural gas engines, industrial gas turbines Employees 90,000+ in 40 countries Sales 500+ products in 200 countries (52% foreign) 2006 Revenue $40B #1 Dow stockholder return performer for last five years Enablers Dealers CAT Logistics CAT Financial CAT Reman Assignment: Corporate Headquarters New Product Introduction/Product Quality Strategic Area of Improvement Beyond 21st Century Working Group Project, Program, Portfolio Management Benchmarking Study Project Management Synergy Working Group Six Sigma In 2000, CAT leaders set a bold goal of bursting through the $20B in stall point in sales and increase sales by a staggering 50% in less than 5 years. The number of CAT employees has nearly doubled since 2000. CAT has been engaged in China since 1983. The Power Behind The Progress: CAT dealers, CAT Logistics, CAT Financial, CAT Remanufacturing CAT Dealers Global network spanning more than 200 countries Over 100,000 employees 1,741 branches and 1,587 rental stores 24-hour service to customers around the world More than 400 FG Wilson, MaK, Perkins and Solar distributors In 2000, CAT leaders set a bold goal of bursting through the $20B in stall point in sales and increase sales by a staggering 50% in less than 5 years. The number of CAT employees has nearly doubled since 2000. CAT has been engaged in China since 1983. The Power Behind The Progress: CAT dealers, CAT Logistics, CAT Financial, CAT Remanufacturing CAT Dealers Global network spanning more than 200 countries Over 100,000 employees 1,741 branches and 1,587 rental stores 24-hour service to customers around the world More than 400 FG Wilson, MaK, Perkins and Solar distributors

44. 44 Observations (CAT) 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 < 4% Employee turnover worldwide Employee Opinion Surveys mandatory Global participation of over 69,000 employees in 2005 Strong correlation between employee engagement and business results Values based culture Value focused on Customers, Shareholders, and Employees VOB and VOC drive action at CAT through BUs. CAT Logistics, CAT Dealers CAT Reman and CAT Financial enable customer loyalty 99.99% delivery of repair parts <24 hrs worldwide. CAT dealers are customer focused on service Improve overall value to the customer < 4% Employee turnover worldwide Employee Opinion Surveys mandatory Global participation of over 69,000 employees in 2005 Strong correlation between employee engagement and business results Values based culture Value focused on Customers, Shareholders, and Employees VOB and VOC drive action at CAT through BUs. CAT Logistics, CAT Dealers CAT Reman and CAT Financial enable customer loyalty 99.99% delivery of repair parts <24 hrs worldwide. CAT dealers are customer focused on service Improve overall value to the customer

45. 45 Observations (CAT) Recognized for developing ACERT® Technology EPA mandates for Tier 4a/4b in 2011/2014 Increased fuel efficiency, and maintained horsepower and durability. Objective Based Research Committee Relentless Quest for Perfection - 6 Sigma First company to globally launch 6 Sigma and deliver benefits that surpassed first-year implementation costs. In 2005, 6 Sigma projects generated more than $500 million in benefits directly related to supply chain issues. Revitalized NPI process Increase R&D Spend early in NPI cycle Use consistent NPI processes across the enterprise Enterprise Training and Registration processes Better focus on resource management and utilization Increase velocity while lowering overall cost Change culture (“Fix it” organization) Recognized for developing ACERT® Technology EPA mandates for Tier 4a/4b in 2011/2014 Increased fuel efficiency, and maintained horsepower and durability. Objective Based Research Committee Relentless Quest for Perfection - 6 Sigma First company to globally launch 6 Sigma and deliver benefits that surpassed first-year implementation costs. In 2005, 6 Sigma projects generated more than $500 million in benefits directly related to supply chain issues. Revitalized NPI process Increase R&D Spend early in NPI cycle Use consistent NPI processes across the enterprise Enterprise Training and Registration processes Better focus on resource management and utilization Increase velocity while lowering overall cost Change culture (“Fix it” organization)

46. 46 IBM World’s largest IT Company Hardware, software, services Employees 366,000+ in 175+ countries 2006 revenue $91.4B 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 366,000 employees worldwide, in over 40 countries Worlds largest provider of IT Business services #2 in SW behind Microsoft #10 Fortune 500 “When you look at IBM in 2006, it’s clear that we are not a “computer company,” or a “services company,” or even an “IT company.” Perhaps more so than at any other time in our history, IBM is an innovation company. We are the innovation partner.” Competitors – EDS, Accenture, Microsoft, HP 366,000 employees worldwide, in over 40 countries Worlds largest provider of IT Business services #2 in SW behind Microsoft #10 Fortune 500 “When you look at IBM in 2006, it’s clear that we are not a “computer company,” or a “services company,” or even an “IT company.” Perhaps more so than at any other time in our history, IBM is an innovation company. We are the innovation partner.” Competitors – EDS, Accenture, Microsoft, HP

47. 47 Observations (IBM) Business and strategy transformed Escape commoditization of IT (hardware and software) Use lessons learned to recreate services/consulting group Federal Practice divestiture/acquirement PricewaterhouseCoopers acquisition Position in Federal/DoD Sectors re-established Innovation – the intersection of invention and insight Invention 14 years as #1 in patent generation Insight Focus on application of technology rather than technology itself Harness innovation through culture of collaboration Tools to bring cultural seams together W3 On Demand Workplace – IBM’s intranet SameTime – Instant Messaging, sharing for video, audio, documents Think Place - Repository of IBM practices, lessons learned Blue Pages – Worldwide employee information IBM traditionally known as a computer company, NOT a consulting company. IBM’s transformation moved them from the commodities of PCs and tapped the real potential in the company, it’s people. Employees are solution oriented (as each of the previous stovepipes demonstrated) but were providing there solutions to just there sectors not the company at large. Gerstner changed that and created the services part of the company to provide solutions to any business based on IT – either the clients or IBM’s. IBM no longer pushed just IBM solutions.IBM traditionally known as a computer company, NOT a consulting company. IBM’s transformation moved them from the commodities of PCs and tapped the real potential in the company, it’s people. Employees are solution oriented (as each of the previous stovepipes demonstrated) but were providing there solutions to just there sectors not the company at large. Gerstner changed that and created the services part of the company to provide solutions to any business based on IT – either the clients or IBM’s. IBM no longer pushed just IBM solutions.

48. 48 Observations (IBM) Where IBM identifies a “commodity” in the business place, they outsource to a company that can do that particular service better. This reduces overhead in most if not all cases and frees IBM to do what that they do best – IT and IT Business Services. The ERPs are, though, not with out their weaknesses. Because the processes are automated, interjecting and accepting an anomaly or a change outside the business rules requires approval at a very high and very centralized level. IBM believes open architecture is the future of computing and the platform for business services. This was radical for a company who led the computer industry at one time for closed and proprietary interfaces, systems and SW.Where IBM identifies a “commodity” in the business place, they outsource to a company that can do that particular service better. This reduces overhead in most if not all cases and frees IBM to do what that they do best – IT and IT Business Services. The ERPs are, though, not with out their weaknesses. Because the processes are automated, interjecting and accepting an anomaly or a change outside the business rules requires approval at a very high and very centralized level. IBM believes open architecture is the future of computing and the platform for business services. This was radical for a company who led the computer industry at one time for closed and proprietary interfaces, systems and SW.

49. 49 McKinsey & Company Strategic level management consulting Consultants ~8,600 in 45 countries 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 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) Founded by Marvin Bower, Harvard MBA Founded: 1926 Ian Davis took over in 2003 (3 Year term) Most offices are less than 100 people Top 3 Competitors Source: Hoovers Red bullet 8 years running in 2004 MBA Entry Level Relative Slow Growth area (competitive) More than 70 Past and Present CEO’s McKinsey Alum At it’s Core an Apprenticeship 2000 – 2003 2nd best consulting firm to wok for “Consulting Magazine’s” “100 Percent to the Third Power”: 100% of the firm’s capabilities to bear on 100% of McKinsey clients, 100% of the time Total employees: 22,619 85.9% of consultants have Masters, MBA, or PHD (does not include doctors and lawyers)Founded by Marvin Bower, Harvard MBA Founded: 1926 Ian Davis took over in 2003 (3 Year term) Most offices are less than 100 people Top 3 Competitors Source: Hoovers Red bullet 8 years running in 2004 MBA Entry Level Relative Slow Growth area (competitive) More than 70 Past and Present CEO’s McKinsey Alum At it’s Core an Apprenticeship 2000 – 2003 2nd best consulting firm to wok for “Consulting Magazine’s” “100 Percent to the Third Power”: 100% of the firm’s capabilities to bear on 100% of McKinsey clients, 100% of the time Total employees: 22,619 85.9% of consultants have Masters, MBA, or PHD (does not include doctors and lawyers)

50. 50 Observations (McKinsey) Toyota Production System (Lean) Text book approach 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 5S - Sift, sort, sweep, standardize, sustain Takt time - Total available time / Customer demand Overall Equipment Effectiveness (OEE) Implementation reality more Tool Box than Culture Change Performance Management Up or out, seven level career path Step up ~ every two years Average time at the firm is 2-3 years Six month reviews Actual performance and improvement areas stressed Feedback at the end of every engagement Just in Time: Items arrive when needed Kaizen: Continuous Improvement Eight Wastes: Overproduction Waiting (time on hand) Unnecessary transport of conveyance Over processing or incorrect processing Excess inventory Unnecessary movement Defects Unused employee creativity Value Stream Mapping (Material and Information Flow Analysis): Value add versus non value add. Information and material flow Takt time: Rate of customer demand (Available time over customer demand) Reviews: At the end of every study a consultant gets an Employee Performance Review (EPR) that is filled out by Engagement Manager (EM) but with input from the APs and EDs The EPRs are sent to consultant and to their Development Group Leader (DGL). Input is also provided to the DGL from peers and the consultant themselves in the form of a Pre-SAR that is a factual list of what the consultant has done in the last six months. DGL presents every six months to Semi-Annual Review (SAR) committee (group of partners looking at fixed number of consultants) and consultant is ranked with one of 5 rankings: (Distinctive, Very Strong, Tracking, Issues, and Council to Leave). If a consultant receives a rating of “Issues” two times, they will receive a CTL on the next review. Think Cell cost: 4 licenses minimum, 1 year for 918.00, 10 license, 2,160.00, 100 license 1,692.00 Just in Time: Items arrive when needed Kaizen: Continuous Improvement Eight Wastes: Overproduction Waiting (time on hand) Unnecessary transport of conveyance Over processing or incorrect processing Excess inventory Unnecessary movement Defects Unused employee creativity Value Stream Mapping (Material and Information Flow Analysis): Value add versus non value add. Information and material flow Takt time: Rate of customer demand (Available time over customer demand) Reviews: At the end of every study a consultant gets an Employee Performance Review (EPR) that is filled out by Engagement Manager (EM) but with input from the APs and EDs The EPRs are sent to consultant and to their Development Group Leader (DGL). Input is also provided to the DGL from peers and the consultant themselves in the form of a Pre-SAR that is a factual list of what the consultant has done in the last six months. DGL presents every six months to Semi-Annual Review (SAR) committee (group of partners looking at fixed number of consultants) and consultant is ranked with one of 5 rankings: (Distinctive, Very Strong, Tracking, Issues, and Council to Leave). If a consultant receives a rating of “Issues” two times, they will receive a CTL on the next review. Think Cell cost: 4 licenses minimum, 1 year for 918.00, 10 license, 2,160.00, 100 license 1,692.00

51. 51 Observations/Recommendations McKinsey Way Exacting standards Think Cell (PowerPoint Add-in) for documentation Teams up and running in short period of time Leadership Development is apprenticeship approach DoD second to none Priorities Client first, consultants second Recommendations for DoD Central Lessons Learned Database for Lean and Six Sigma projects Standardize mandatory reporting with tool like Think Cell Update Fitness Report Evaluation System Emphasize professional accountability Emphasize performance improvement areas Stress description of approach and tools used For decision meetings, move should be toward commonality to remove variation between reporting agencies Current system borders on self-reporting Stress description of approach and tools used For decision meetings, move should be toward commonality to remove variation between reporting agencies Current system borders on self-reporting

52. 52 Deutsche Bank Leading Global Investment Bank Employees 68K employees in 73 countries Market Capitalization $71B 2005 Revenue $33.54B 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

53. 53 Observations (Deutsche Bank) Outstanding approach to performance management Supervisor/employee conference prior to rating period mandatory 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

54. 54 Observations (Deutsche Bank) ‘Near Miss’ risk analysis an effective tool Increases negative events prediction/prevention A reactive measure that complements/feeds std proactive measures Internal controls, self assessments, key risk indicators Near miss incident data gathered in central system Actual loss ‘signatures’ correlated to near misses 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 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