Secretary of Defense Corporate Fellows Final Outbrief Academic Year 2013-2014.

Secretary of Defense Corporate Fellows

Final Outbrief

Academic Year 2013-2014


Agenda

•Program overview • Industry trends & recommendations

– Talent Management

– Managing Innovation

– Acquisition Process Improvement

– Cybersecurity & Leveraging IT

– Managing through Budget Uncertainties

•Further discussion / Q&A

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Program Overview

• SECDEF concerns for future Service leaders– More open to organizational and operational change

– Recognizing opportunities possible by emerging technologies

– Appreciating resulting revolutionary changes• 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, technologies and projects

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Program Overview

• Fellows have access to best executive level business practices– Strategic Planning

– Organization

– Change Management

– Human Resources

– Technology Development (including Information Technology)

– Supply Chain

– Outsourcing

• Builds 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 career4

Shelby Mounts

Why are we talking about Infrastructure as majority of DoD budget when we aren't going to touch on it as one of our topics?


Program Overview

• Reports and Briefings– Monthly Reports and Professional Paper published at end of year

– Mid and Year-end Briefings to Pentagon Leadership• DEPSECDEF, VCJCS, Service Secretaries & Chiefs , 25+ others

– Business insights relevant to DoD culture/operations

– Recommended process/organization changes

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Program Overview

• All Military Services – Active, Guard, Reserves

– O-5/O-6 (post-command or equivalent community milestone)

– Thoroughly screened; High General/Flag officer potential

– Senior Service College equivalent

• Pre-assignment 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

• Ten to Eleven Months at Sponsoring Companies

• Group visits to each sponsoring company – Meeting CEOs, Senior Leadership team, other executives– Presentations on sponsor’s business sector and best practices

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Corporate Sponsors

• Prior Years3M, ABB Group, Accenture, Agilent Technologies, American Management Systems, Amgen, Andersen Consulting, Apple, Boeing, Booz Allen, CACI, Caterpillar, Cisco, Citigroup, CNN, Deutsche Bank, DirecTV, DuPont, EADS, Enron, ExxonMobil, FedEx, General Dynamics, Georgia Power, Google, Hewlett-Packard, Honeywell, Human Genome Sciences, IBM, Insitu, iRobot, JPMorgan Chase, Johnson & Johnson, Lockheed Martin, Loral, McKinsey, McDonnell Douglas, Merck, Microsoft, Mobil, Netscape, NCR, Northrop Grumman, Oracle, Pfizer, Pratt & Whitney, PricewaterhouseCoopers, Raytheon, SRI/Sarnoff Labs, Sears, Shell, Sikorsky, Southern Company, SpaceX, SRA International, Sun Microsystems, Symbol Technologies, Union Pacific, United Technologies, Vertex Aerospace

• Current Year (2013-2014)3M, Amgen, Honeywell, Insitu, iRobot, Johnson & Johnson, McKinsey, Microsoft, Morgan Stanley, Norfolk Southern, Northrop Grumman, Raytheon, Shell, SpaceX, SRI International

• Next Year (2014-2015)Autodesk, Booz Allen, CACI, Cisco Systems, Dynamic Aviation, FedEx, General Dynamics, Georgia Power, JPMorgan Chase, Lockheed Martin, McAfee, Oracle, Hewlett-Packard, SAP, Sikorsky, Union Pacific

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Fellows and Corporate Assignments

Col (sel) Josh Olson, USAF 3M Company, St. Paul, MN

Col (sel) David Peeler, USAF Amgen, Inc., Thousand Oaks, CA

COL Michael McTigue, USA Honeywell Aerospace, Phoenix, AZ

Col George Schwartz, USAF Insitu, Inc., Bingen, WA

LtCol Pete Mahoney, USMC iRobot Corporation, Bedford, MA

Col Mary Burrus, ANG Johnson & Johnson, New Brunswick, NJ

LTC(P) Larry Dugan, ARNG McKinsey & Company, Washington, DC

LtCol Ahmed Williamson, USMC Microsoft Corporation, Reston, VA

CDR Clark Childers, USN Morgan Stanley, New York, NY

Col (sel) Walt Yates, USMC Norfolk Southern Corporation, Norfolk, VA

COL James Kaine, USA Northrup Grumman Elec. Systems, Linthicum, MD

CDR Tony Jaramillo, USN Raytheon Space & Airborne Systems, McKinney, TX

CDR Shelby Mounts, USN Royal Dutch Shell, New Orleans, LA

CAPT Billy Palermo, USN Space-X Corporation, Hawthorne, CA

Lt Col Terry L. Thiem, USAFR SRI International, Menlo Park, CA

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Corporate Sponsor Locations

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Agenda








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Innovation

Dynamic Global and Geopolitical Environment

Big Data / Information

Competition for Resources

Fiscal and Budgetary Pressures

Strategy starts with Megatrends

Talent Management

Managing DoD Innovation Acquisition Process Improvement

Cybersecurity & Leveraging IT Managing through Budget

Uncertainties


Marketplace Trends DoD as Customer

Industry Response during ‘Age of Austerity’

Rapid Internal Restructuring & Portfolio Management

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“Innovation” -- What is the Next Big Disruptive Idea (BDI)?

Positioning AgainstDynamic Global Pressures

Mixed Signals & Expectations

Reorienting Investment Strategies


Industry Trends

• Rapid Internal Restructuring– Targeted and paced force reductions

– Focus on value proposition for shareholders, customers, employees

– Examples: iRobot in 2012; SRI International 2013

• Aggressive Portfolio Management‒ Pronounced pivot to commercial, international markets

‒ Recalibrating business cases; capabilities that are / can be commercialized

‒ Heavy risk identification & management for capital deployment strategies

• Dynamic Global Pressures– Commercial companies penetrating national security marketplace

• Vice defense contractors transitioning to commercial marketplace

– New entrants leveraging commercial technology & robust private capital

– Outpacing traditional incumbents

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Disruptive / Innovative Technologies Will Come From New, Nimble Entrants


DoD as Customer: Mixed Signals & Expectations

• Increasing use of Lowest Price, Technically Acceptable (LPTA) criteria‒ Instead of Best Value

‒ Increasing requirements for upfront prototypes/demos at higher tech readiness

• Levels are changing the cost equation

‒ Most companies OK with open architecture/modular

• Comes with a premium that must be paid upfront by DoD

• “identify and pursue clearly defined Grand Challenges”‒ S&T priorities for FY15 budget in 2013 OMB memo

‒ 2015 FDYP RDT&E plan asks industry to invest more R&D funds, but

• “prototype and shelve” potential technologies

• Spend capital for S&T R&D without identified payoff

‒ Not practical without procurement

– “higher, faster, farther” & low, slow production directly at odds with high-tech commerce & “better, quicker, cheaper” (Defense News, 21 Apr 2014)

14“ We do not do ‘recreational’ S&T R&D” - Chief Scientist, Major Defense Contractor


Agenda








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• Civilian companies struggling w/ recruiting military– War for Talent is global

• “Great Crew Change” of skilled technical workers looming

• Technical industry competing for experienced talent

– Need technically skilled to fill their troughs

– Companies do recognize and like Veterans’ “soft skills”

• Leadership, teamwork, decision making, risk management

• Maturity, reliability, dedication

– Most companies don’t recognize military technical talent

• Some are figuring it out (Microsoft Software Systems Academy)

– Civilian compensation incentives impact retention significantly

Recruit Develop Retain

Talent Management


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Talent Management

• Effective companies expend great effort developing future leaders – Corporate leaders develop annual/long-term/stretch goals upfront

• Performance evaluated against those goals

– Leader’s time specifically structured

• Ensures they’re not “Too busy working to care” about the next generation

– Intentional social interactions included

– People valued and handled in a way that recognizes they can walk tomorrow

• High potentials are important, but so is everyone else

• DoD training pipes are robust but can be improved – Leverage emerging cheap training solutions, e.g., X Box-like gaming console

• Easily adaptable, highly effective way to deliver broad content spectrum

• Significant cost reduction alters traditional classroom resource requirements

– Improve quality/effectiveness over static-motion training

– Younger personnel need look/feel of high quality graphics, “real world” content


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• Leverage civilian education, innovation/tech development investments – Close Civil-military divide through increased training/refresher in career paths

• Closer to sources of change, innovation, new technology developments

– Train in commercial world vs. traditional military schools

• Increased span of overall personnel education

• Reduced brick and mortar cost efficiencies

– Increase perceived value of transitioning military personnel in civilian eyes

• Narrative battle/same language

– Unlock opportunities for resource efficiencies in military labs

• Fill in “Valley of Death” between development silos

– Make a down payment for future industrial mobilization

– Historical precedent includes Harvard Business School on a large scale

• WW II four month long Navy War Adjustment Course


Talent Management


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• Culture crisis a recipe for losing the Talent War– Successful companies have strong culture; people are proud of it

– Value of military service now more uncertain• Unfocused messaging isn’t delivering through the noise

• End of wars

• Budget uncertainty/drawdown impacts

– Leadership endorsing reduced compensation increases

• Global uncertainty and mixed messages from senior leaders

• Loss of confidence in the institution

– Improving economy without a clear call to serve = predictable outcome

– DoD can't compete with industry on compensation• CAN do a much better job selling the value of service today

• Compensation structures providing loyalty and longevity incentives WORK

Talent Management



Agenda








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• ‘Innovate’, ‘innovation’, ‘innovative’ found 33 times in 2014 QDR

• Why is innovation important?

‒ Need to reduce acquisition time – get products to warfighter faster

‒ Need to reduce cost due to budget cuts, sequestration

‒ Need to maintain technology advantage on the battlefield

• What is innovation?

‒ Rapid creation and delivery of a needed capability to the warfighter• On and off the battlefield with sustainable/equitable life cycle costs

• For both DoD and defense industrial base.

Managing Innovation

Key to Success: Standard definition of Innovation


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• Industry’s innovative technology experiences

‒ Development not a short-term proposition• A journey requiring a significant time (3 -5 years or more) to implement

‒ Requires a change in the overall culture of an organization

‒ Requires sustained, long-term commitment from Leadership

‒ Requires training and buy-in at all levels of the organization

‒ Requires funding and dedicated personnel

• Can not be an additional duty

‒ Better to start programs with experienced contractor personnel

• Do not try to build internal teams too early

‒ Have to accept there will be failures when reaching for stretch goals

Managing Innovation

Innovation is a process that must be managed and requires manpower, time and funding to be successful


Agenda








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• Large joint/combined requirements programs not delivering promises

‒ Consuming resources that could be used to address real needs

‒ Expectations vs. Reality

• Future Combat System, Littoral Combat Ship and Joint Strike Fighter

• Adverse industrial base impacts

– Simplify programs and shorten acquisition/development cycles

• Improve success rate and keep high tech engineers in the game

– Minimize requirements; define needs at highest acceptable level

• Provide flexibility in system solutions

– Focus on effective platform capabilities and open architectures

• Incorporate follow-on capability upgrades

– Fail Fast

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Acquisition Process Improvement

Realistic expectations are critical to program success


• Traditional requirements based acquisition ineffective/inefficient‒ Locks in requirements before understanding what is achievable

‒ Long system development timelines lead to excessive costs• Capability delivered to the warfighter much later than needed

• Embrace capabilities based acquisition ‒ Approach to be use when looking for revolutionary change

• Capitalize on innovations ready now– Off-the-shelf solutions often provide 80-90% of desired capability

• Remain agile to prevent technical surprise

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Capabilities based acquisition can save cost and deliver greater capability to the warfighter sooner


• Program offices are incapable and/or not empowered to develop and execute streamlined, innovative acquisition approaches

– Develop and empower Program Managers to be innovative

• Open to planning and executing non-standard acquisition strategies

– Overcome institutional adversity to change

• Restructure program offices with right expertise and technical support

– Use full flexibility that Federal/Defense Acquisition Regulations allow

• Tailored acquisition approaches should be the norm

– Shepherd strategies through approval process

• Program Executive Offices and Acquisition Executives

– Validate engineering and cost models

– Ensure effective Human System Integration issues understood/addressed early

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Capable and empowered program offices are critical to application of larger acquisition goals i.e.. Better Buying Power initiatives


• Strict FAR part 15 application drives cost‒ Barrier to new market entrants and reduces competition

– Expand usage of FAR part 12 - Commercial Item Acquisition

– Many high-tech domains no longer belong solely to Govt/DoD

– Affordable form, fit, function trumps need for excessive documentation

• Cost Plus contracting incentives not aligned with cost saving– Use fixed price contracts where practical

– Negotiate mutually beneficial milestone payments

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Commercial procurement practices better posture DoD to capitalize on commercial capabilities and innovation


• Compliance with government Cost Accounting Standards (CAS)

‒ Drives substantial overhead

‒ Only slightly more accurate than commercial data

• Evaluate the actual value to the customer

– Force compliance only when absolutely necessary

• Leverage Generally Accepted Accounting Principles (GAAP) data

• Rely on far less expensive independent accounting audits– Recognized industry experts (Deloitte, KPMG, Ernst & Young, PWC)

• Cost Data Reporting requirements add additional cost burden

– Do not levy requirement on fixed price contracts

– Replace collection of rearward looking data

• Use market research to predict commercially derived systems future costs

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GAAP is more affordable and perhaps more useful than CAS


• Excessive operations and support costs

‒ Not adequately addressed

‒ Lack of focus on systems sustainment

• Combine life cycle support for platforms with common components

– Increase Common Automatic Test Systems for common components

– Use Original Equipment Manufacturer (OEM) Special Test Equipment (STE)

– Place Field Service Repair (OEM STE) closer to the flight line

– Increase Centers of Excellence

• Eliminate redundancy by combining facilities that have like work

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Capitalize on efficiencies in life cycle support


Agenda








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• People – Get the right people on the bus– Recognize, understand, build capable cyber force

• Operates within cyberspace as an operational domain

– Prepare trained and ready Cyber Forces• Identify cadre of IT Acquisition Professionals

– Identify distinct skills and training for offensive AND defensive cyber

Remain committed to Cyberspace domain: Organize, Train and Equip a relevant force.

People

Process

Technology

Cybersecurity & Leveraging IT



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• Process - Take acceptable risks & avoid analysis paralysis• Clearly articulate product / solution requirements to industry

– Ensure funding availability is programmed into solution delivery

• Resist “requirements creep” that increases cost and time-to-target

• Avoid imposing unnecessarily expensive security controls– Don’t buy an insurance policy which costs more than what is being insured

Develop IT/Cyber Ecosystem commensurate w/ Industry...Industry standard meets/exceeds DoD’s (e.g., Financial & Tech markets).

People

Process

Technology



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• Technology – Use the right weapon for the target– Dramatically improve IT Portfolio Management

– More efficiently leverage commonly used IT tools • Increase operational reach and business efficiencies

– Develop, articulate, execute unified departmental enterprise strategy • Implement Joint Information Environment (JIE) aggressively

– Reform IT Acquisition Process• More Cyber engineers

• Reduce layers of unnecessary administrative review

– More driving instructors and fewer traffic cops

Synergize current joint capabilities thru IT awareness…leverage Industrial innovation.

People

ProcessTechno

logy


Agenda








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• Fully Centralized Cost Management Organizations

– CEO level sponsorship and mandate

– Organized adjacent to Company Sourcing Operations

– Business units partnerships; not just mandated changes

• Benefit reductions forced to business units via CEO / COO

– Compensation reductions

• Targeted outsourcing, location strategy, salary/bonus deferrals, manpower reductions

– Non-Compensation reductions

• Sourcing contract renegotiations, targeted expense reductions & furloughs

– Non-operational business units Included in efficiency programs

• Company-wide sourcing

– Silo’d organizations forced to utilize firm-wide sourcing synergies

– Exceptions tracked and monitored by a central authority

Corporate Management through Budget Uncertainty

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Recommendations for DoD

• Fully Centralized Cost Reduction Effort across ALL businesses – Exceptions destroy cost reduction efforts

– Incentives for behavioral change must have teeth

• Highest level sponsorship and backstop

– Industry partnerships with Business units

• Not simply mandating reductions

• Strategic Sourcing mandated– Incentivize away from exceptions (negative or positive)

• Organizational effectiveness programs for overhead/operational functions– Cultural shift from wartime spending mindset for all Services and components

• Reduce individual and institutional complexity– Achieve increased Operational efficiencies

Managing through Budget Uncertainties


Agenda



– Managing DoD Innovation





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Secretary of Defense Corporate Fellows Final Outbrief Academic Year 2013-2014.

Documents

Transcript of Secretary of Defense Corporate Fellows Final Outbrief Academic Year 2013-2014.