Lockheed Martin Corporation Strategic Plan
Last updated on June 11th, 2018 at 10:32 am
Lockheed Martin is a leader in the Aerospace Industry that provides a diverse range of products for the commercial and government sectors around the world. The company has enjoyed record profits in the wake of September 11 due to security interests around the world. As the global demands change, Lockheed must be able to continue to diversify to meet these changing demands. The year 2005 is a crucial year where the company must develop a new strategy to prepare for a downturn in military needs.
Lockheed Martin Corporation Strategic Plan
Company Overview and History
The Lockheed Martin Corporation is an advanced technology company based in Bethesda, Maryland that was established in 1995 when Lockheed Corporation and Martin Marietta merged. Although the company has been newly formed, it is comprised of 17 heritage companies that date back to 1909. These 17 companies include Lockheed Corporation, Martin Corporation, American Marietta, Goodyear Aerospace, General Dynamics, Sperry, IBM Federal Systems, Ford Aerospace, Sanders, Gould, Xerox Electro-Optical Systems, Loral Corporation, UNISYS, and Vought (Lockheed Martin, 2005a).
Lockheed Martin currently employs 130 thousand employees worldwide and in 2004 generated $35.5 billion dollars in sales. The company offers research and development services as well as a manufacturer of advanced technology systems and aerospace aircraft and equipment. 80% of the company’s business is with the United States Department of Defense (Lockheed Martin, 2005b).
The company is best known for its jet powered aircraft. Most notably are the C-130 transport cargo, F-16 Fighting Falcon, SR-71, F-117A Stealth Fighter, F/A-22 Raptor, and the U-2S spy plane. Lockheed Martin is also responsible for the manufacturer of NEXTRAD Doppler RADAR, the GPS System, the Hubble Space Telescope, Magellan spacecraft, Pershing II missile systems, and the Titan IV missile systems. Additionally, the company has set milestones that have shaped the aerospace industry (Lockheed Martin, 2005b). Some of the prevalent achievements of the company are as follows:
- In 1962, John Glenn is the first American to orbit the Earth using General Dynamics Atlas Rocket (Lockheed Martin, 2005a).
- During 1963, Jacqueline Cochran pilots a Lockheed F-104 Starfighter, setting the woman’s speed record at 1,429 mph (Lockheed Martin, 2005a).
- Lockheed’s SR-71, the world’s fastest aircraft sets the world’s fastest speed record by traveling America’s coast to coast in 64 minutes and 2 seconds at an average speed of 2,144.8 mph in 1990 (Lockheed Martin, 2005a).
- Lockheed Martin develops a tracking infrastructure system for the U.S. Postal Service. This system enabled the Post Office to track and confirm packages, greatly maximizing delivery time and accuracy and reducing the likelihood of lost packages (Lockheed Martin, 2005a).
Lockheed Martin continues to expand their services beyond the limitations of aerospace. The company generated $17.3 billion in 2004 in these diversified services. These services include energy programs, government and commercial IT services, and other federal services. Lockheed Martin is led by Robert J. Stevens, Chairman, President and Chief Executive Officer. The company is currently the largest defense contractor in the world (Lockheed Martin, 2005b).
The Boeing Company
The Boeing Company is currently the world’s largest aerospace company. Additionally, they maintain the title of the world’s prominent defense contractor. The Chicago based Boeing Company employs roughly 154 thousand people in 67 countries worldwide. In 2004, the company had revenues of $52.45 billion dollars. Presently, Boeing has established itself as the largest United States exporter (Boeing Company, 2005a).
Boeing is widely known for its production of commercial jetliners, military aircraft, satellites, and missiles. The list of current commercial jetliners includes the 717, 737, 747, 757, 767 and 777 series aircrafts. There are more than 12,000 of these aircraft in service worldwide, which consist of 75% of the world’s commercial fleet. Boeing also offers global financial services, aviation training services and other diversified services and products (Boeing Company, 2005b).
Despite being the world’s largest aerospace company, Boeing has endured several setbacks in recent years. In 2003, then CEO Philip M. Condit was forced to resign after allegations of corruption by the United States Air Force. Being was accused of inflating lease prices to the Air Force. Harry Stonecipher, former McDonnell Douglas CEO, replaced Condit but was also removed in 2005 for violating company conduct codes (Yahoo, 2005).
In June 2003 Lockheed Martin sued Boeing claiming that Boeing had resorted to industrial espionage in 1998 to succeed in gaining the Evolved Expendable Launch Vehicle (EELV) contract. Lockheed alleged that an ex-employee distributed 25,000 proprietary documents to Boeing. Lockheed maintained that these documents permitted Boeing to win 21 of the 28 offered military satellite launches. In July 2003 Boeing was disciplined, with the Pentagon removing $1 billion worth of contracts away from Boeing and giving them to Lockheed (Wikipedia, 2005).
General Dynamic’s corporate headquarters is in Falls Church, Virginia. The company has leading market eminence in shipbuilding and marine systems, land and amphibious combat systems, mission-critical information systems and technologies, and business aviation. Additionally, General Dynamics is a principal supplier of advanced defense systems to the United States and its partners and has established the world standard in business jets. It has four major business segments which are Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems (General Dynamics, 2005).
General Dynamics Land Systems is best known to produce the M1A2 Abrams Battle Tank that primarily supplies the United States Army. The company also holds the distinction of designing the F-16 fighting Falcon, known as the most successful fighter of its generation. General Dynamics sold the project to Lockheed Martin in 1993. The company has since abandoned military aerospace programs (General Dynamics, 2005).
General Dynamics is highly competitive with Lockheed Martin via their General Dynamics Information Systems & Technology business unit. The unit specializes in incorporating commercial and military off-the-shelf and custom-engineered products to convey command, control, communications, computing, intelligence, surveillance, and reconnaissance solutions. This includes supplying information-assurance resolutions and putting forward advanced software and electronics systems. This business unit has increased its authority recently with the aid of defense, intelligence, and homeland defense needs (General Dynamics, 2005).
Raytheon was founded as the American Appliance Company in 1922. The company is an industry leader in defense and government electronics, space, information technology, technical services, and business aviation and special mission aircraft. Their mission is to be the most well-liked defense and aerospace systems supplier in the world. Raytheon uses their own version of Six Sigma which is implanted within the framework of their business organizations as the means to improve productivity, develop the business, and to build a new tradition (Raytheon, 2005).
Integrated Defense Systems (IDS) is Raytheon’s business unit that is competing with Lockheed Martin the most. Raytheon has a sturdy international and domestic customer base that includes the U.S. Missile Defense Agency and the U.S. armed forces. IDS is a supplier integrated air and missile defense and naval and maritime war fighting solutions. The company invests in the latest technology to develop products that are cutting edge. The company has also benefited by the Global War on Terror by designing high-end surveillance and reconnaissance systems (Raytheon, 2005).
United Technologies Corporation
The United Technologies Corporation (UTC) has been dubbed Fortune Magazine as the most admired aerospace company in the world. This diverse company has several business units that include Carrier heating and air conditioning systems, Hamilton Sundstrand Aerospace and Industrial Systems, Otis Elevators and Escalators, Pratt & Whitney, Sikorsky, UTC Fire & Security protection services, UTC Power and United Technologies Research Center. The company is best known for their Pratt & Whitney aircraft engines that propel over 50 percent of the world’s commercial airliners and their products can be discovered on more than 90 percent of the world’s aircraft (United Technologies, 2005).
Sikorsky is world renown for their design and production of advanced helicopters for commercial, industrial, and military uses. Hamilton Sundstrand may produce the highest threat to Lockheed Martin as they produce engine control and electric power systems, as well as electronic controls for actuation systems for aircraft. Lockheed and UTC frequently work together on such projects as the Joint Strike Fighter. UTC maybe the least threat of Lockheed Martin since the two companies manufactures many unlike products (United Technologies, 2005).
Northrop Grumman Corporation is a global defense company that offers a wide range of technologically advanced, pioneering products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding, and space technology. Most of the business units in the company directly compete with Lockheed Martin. The two companies run so parallel that they attempted to merge in 1998 and were blocked by the Federal Government who was concerned that the combination was too powerful. Despite being able to be highly competitive, the two companies have undergone many high level joint ventures such as the Joint Strike Fighter (Northrop Grumman, 2005).
Current Strategies and Objectives
Lockheed Martin’s current strategy is to focus on the business units and projects that encompass the core strengths of the company. The company has enjoyed four years of repeated improvement in their operating margins through a mix of investments and divestures. Business units that do not fit their core businesses that provide stability have been sold or discontinued. For those products that the company deems part of their strengths, they intend to gain market shares in the form of horizontal integration. Their goal is to continue to increase their Return on Invested Capital (ROIC) by using their assets and other investments wisely (Lockheed Martin, 2005b).
Lockheed Martin has chosen to bolster their Information Technology business units to provide customers the latest and more secure means of communication possible. The company has also purchased Sippican Holdings Inc., a supplier of naval electronics. Lockheed Martin believes that their expertise in avionics systems can be applied to naval weapons as well. The company plans to make several more acquisitions in the Information Technology and Naval/Aerospace electronics industry soon. Investing in missile and space technology is also part of their overall strategy (Lockheed Martin, 2005b).
Sensing that the commercial satellite industry has become over-saturated, their satellite business units have been trimmed down or eliminated. Lockheed Martin has recently sold their stakes in three satellite companies that include New Skies, Comsat General and Intelsat. All three companies are a hindrance to the vision of the company in the future. Additionally, a merger with Titan Corporation was canceled due to the same reasons (Lockheed Martin, 2005b).
Lockheed Martin’s overall objective is to continue to increase their operating income annually and position themselves to be able to react to any political changes that may come. Horizontal integration in the commercial and government sales industry will help the company become increasingly diverse. The company intends to focus on providing current customers as well as potential customers with the best quality service possible (Lockheed Martin, 2005b).
Current Mission Statement
“To become the preferred supplier of high quality, cost competitive technical and personnel support services for government and commercial customers and all Lockheed Martin companies in the United States as well as other international companies marketing business opportunities in the world.” (Lockheed Martin, 2005b).
Revised Mission Statement
To become the preferred trusted supplier of a diverse range of advanced security and defense technologies that meet the highest standards for commercial and government organizations around the world.
Current Vision Statement
“To be the world’s best advanced technology integrator” (Lockheed Martin, 2005b).
Revised Vision Statement
To become the trusted leader in providing the world with advanced communication and security needs.
Competitive Profile Matrix (CPM)
A Competitive Profile Matrix is used to categorize strengths and weakness of a company with its major competitors (David, 2005). The Aerospace industry is rather unique compared to other industries. While companies viciously compete for market share and government contracts, they frequently unite to bid on a contract. An example of this is a joint venture between Boeing, Lockheed Martin, United Technologies Corporation, and Northrop Grumman in the design and production of the F-35 Joint Strike Fighter contracted to the United States military (Yahoo, 2005).
The CPM identifies the focus and strengths of major business units with each company. Boeing, the largest aerospace company of the group heavily relies on its sales of commercial airliners but is not very strong in military aircraft contracts. Lockheed Martin strength lies in their production of military aircraft, especially tactical aircraft to the United States and foreign governments. Lockheed Martin has recently invested in resources into naval technologies. Doing so, places the company in increased competition with Northrop Grumman, and United Technologies Corporation (UTC) (Yahoo, 2005).
UTC is the only company in the group to produce jet engines. Boeing and Lockheed Martin depend heavily on the quality Pratt & Whitney engines provided by UTC. UTC is strong in providing avionics equipment and fixed wing aircraft (Yahoo, 2005).
While all companies in the industry are leaning towards providing Information Systems, Boeing and Raytheon are considered the leaders in the industry. With the sale of the F-16 to Lockheed Martin, General Dynamics is no longer a concern in the military aircraft industry. GD has elected to focus on land vehicles and other technology solutions (GD). Commercial satellite comparisons are not included in the CPM resulting in the divestment of satellite business units by Lockheed Martin in 2004. The CPM is presented below:
|Critical Success Factors||Weight||Rating||Weighted Score||Rating||Weighted Score||Rating||Weighted Score|
|Commercial Aerospace Share||.20||2||.40||4||0.8||1||0.2|
|Military Aerospace Share||.20||4||.80||2||0.4||1||0.2|
|Naval Technology Share||.20||2||.40||3||0.6||3||0.6|
|Information Services Share||.20||3||.60||3||0.6||4||0.8|
|Raytheon||Northrop Grumman||General Dynamics|
|Critical Success Factors||Weight||Rating||Weighted Score||Rating||Weighted Score||Rating||Weighted Score|
|Commercial Aerospace Share||.20||2||0.4||3||0.6||2||0.4|
|Military Aerospace Share||.20||2||0.4||3||0.6||2||0.4|
|Naval Technology Share||.20||3||0.6||4||0.8||3||0.6|
|Information Services Share||.20||4||0.8||3||0.6||4||0.8|
External Factor Evaluation (EFE)
An External Factor Evaluation (EFE) Matrix allows strategists to review and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information (David, 2005). A summary and table of external opportunities and threats are listed below.
Although the satellite industry has become saturated with products and the demand is low, there are opportunities to provide advanced technology that can be used inside satellites. Lockheed Martin is in the position to provide such technology to partner with companies that build satellites. The Global War on Terrorism and the needs for Homeland Security technology offers Lockheed Martin a continuing demand for Information Technology and security needs. This demand not only with the United States, but also includes foreign sales. This is evident with the interests by foreign countries in the newly designed F-16 fighting Falcon (LCK). Missile and space-based technology provide an avenue for demand as it can be associated with Homeland Security needs. Naval opportunities exist with the need for the United States to replace the countries aging fleet (Lockheed Martin, 2005b).
Threats include the high costs of research to develop advanced technology. As the demand for high technology products rise, the costs associated with it increases with it. This means that a higher percentage of revenue must be allocated to research where it could be used somewhere else (David, 2005).
Potential lawsuits on environmental contamination and pressure from environmental activists are a constant threat to the company. Given the company environmental record, Lockheed Martin must be proactive in their environmental responsibilities. A sudden political shift in the upcoming elections can quickly place Lockheed Martin in a downward trend. Politicians that wish to limit defense contracts will diminish military and defense revenues. An ongoing threat is the possibility of interruptions within the supply system. Lockheed Martin uses sole suppliers for many of their raw materials. The company has little control of their suppliers especially companies that supply aircraft material (David, 2005).
The Boeing Company and Raytheon are considered the two biggest threats to Lockheed Martin. Boeing is currently the largest aerospace company in the world industry with the resources it needs to invest in horizontal integration as well as backward integration. Boeing also has extensive Information Systems contracts with the United State Government. Raytheon has a long history of developing high tech equipment and security systems to the United States government. Raytheon’s political ties with the nation may give Raytheon a competitive advantage. Although Northrop Grumman, General Dynamics, and UTC are also viable threats, Boeing and Raytheon are in the best overall position to be competitive (Yahoo, 2005).
|Key External Factors||Weight||Rating||Weighted Average|
|2. Homeland Security needs||.10||3||0.3|
|3. Global War on Terrorism||.10||4||0.4|
|4. Sales to foreign countries||.05||3||0.15|
|5. Space exploration needs||.05||2||0.1|
|6. New markets (Naval)||.10||2||0.2|
|3. Environmental activists||.05||1||0.05|
|4. Political changes in the USA||.10||3||0.3|
|5. Boeing is the strongest competitor||.10||3||0.3|
|6. Interruption of materials||.10||2||0.2|
|7. Raytheon has a growing IT solutions business unit||.10||2||0.2|
Internal Factor Evaluation (IFE)
An Internal Factor Evaluation (IFE) Matrix is a strategy-formulation tool that condenses and evaluates the key strengths and weaknesses in the functional areas of a business. A major internal strength of Lockheed Martin is that they have been able to increase their Operating Income over the last four years. This shows that the company has been focuses and taking advantage of changes in the industry. In the age of Homeland Security concerns, the company has managed to secure many military and government contracts. This has been aided by their political ties, history, and willingness to partner with competitors. Six Sigma implementation aids the company in reducing wastes and producing a higher quality product. A diverse business line helps shield the company from fatal drops in income due to lower demands in one product (David, 2005).
Although strength of the company is the fact that they have military contracts, one of their major weaknesses is their dependence on military contracts. Lockheed Martin has had weaknesses with exercising environmental accountability and soil contamination. Other weaknesses include the shortage of machine tooling suppliers to manufacture equipment needed to produce aircraft, shortages of skilled workers to maintain the machines, and the company only uses one supplier for raw airframe materials (David, 2005). The IFE table is below:
|Key Internal Factors||Weight||Rating||Weighted Average|
|2. Adaptive to change||.05||4||0.2|
|3. Six Sigma implementation||.05||3||0.15|
|4. Political ties||.10||4||0.4|
|5. Diverse business segments||.05||3||0.15|
|6. Investments in new technology||.05||3||0.15|
|7. Military contracts||.10||4||0.4|
|8. Solid history||.05||3||0.15|
|9. Partnerships with competitors||.05||3||0.15|
|2. Dependence on military contracts||.10||1||0.1|
|3. Skilled Labor hard to find||.05||2||0.1|
|4. Shortage of machine tool suppliers||.10||2||0.2|
|5. Uses one supplier for essential materials||.10||2||0.2|
SWOT Matrix (TOWS)
The SWOT Matrix (TOWS) is a vital matching device that aids managers to develop four types of strategies: SO Strategies, WO Strategies, ST Strategies, and WT Strategies. SO strategies pursue opportunities that are a good fit to the company’s strengths. WO strategies overcome weaknesses to pursue opportunities. ST strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats. WT strategies institute a defensive plan to prevent the firm’s weaknesses from making it highly vulnerable to external threats (David, 2005).
SO strategies include taking advantage of increased operating income, the company’s ability to adapt to change, and Lockheed Martin’s investments in new technology to seize opportunities in advanced technologies. Opportunities that have been untapped by the company within the military and foreign sales can be captured by focusing on a diverse product line. Missile, space, and naval technology can be developed to take advantage of needs by the United States and other high technology nations.
In WO strategies, the dependence on military contracts can be softened by continued efforts to invest in technology to assist needs in the Homeland Security and the Global War on Terrorism by government as well as commercial organizations. Funding received by this diverse product line can be reinvested in the company to increase funds for research and design. To overcome environmental concerns, funds can be used to clean up and prevent any additional damage to the ecosystem.
ST strategies for Lockheed Martin focus on using their resources to attract a diverse range of customers around the world. Using their Six Sigma philosophies, the company can improve profitability to remain competitive in the commercial industry as well as to foreign governments. Environmental accountability should be a major concern for the company as increased demands around the world expect minimal damage. Efficient inventory systems can help buffer any potential shortages from suppliers. Using minimal waste, inventory can be used on an optimal level.
WT strategies call for the possibility of using backwards integration of suppliers to have more control over process flow. Environmental teams can be funded to ensure that studies are conducted to head off any excess damage. Finally, the company could sponsor courses to train skill labor employees to get them working using the best knowledge possible. Only by taking these matters seriously and applying proper resources, the threats and weaknesses of the company can be eliminated.
|Opportunities||SO Strategies||WO Strategies|
|Threats||ST Strategies||WT Strategies|
Strategic Position and Action Evaluation Matrix (SPACE)
The Strategic Position and Action Evaluation (SPACE) Matrix is another essential matching instrument. Its four-quadrant framework reveals whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. The axes of the SPACE Matrix represent two internal dimensions (financial strength [FS] and competitive advantage [CA]) and two external dimensions (environmental stability [ES] and industry strength [IS]). These four factors are the most important determinants of an organization’s overall strategic position (David, 2005).
The SPACE matrix for Lockheed Martin indicates that the company can obtain an aggressive strategy (David, 2005). The financial strength of the company is relatively high in comparison to its competitors. Due to the demands with Homeland Security and the Global War on Terrorism, the Aerospace industry is enjoying rapid growth (Lockheed Martin, 2005b). Diversity in product lines will determine the stability in the environment. All major companies in the industry are seeking to extend their products and services to attract a wide range of customers. The industry is no longer limited to the dependence on commercial and military aircraft sales.
|Lockheed Martin SPACE Matrix|
|FINANCIAL STRENGHTS – FS|
|Return on Investment||5|
|INDUSTRY STRENGHTS- IS|
|US Military Spending||-3|
|Homeland Security/Global War on Terrorism||-1|
|COMPETITVE ADVANTAGE – CA|
|Control Over Suppliers||-3|
|ENVIRONMENTAL STABILITY – ES|
|X Axis (5 + -1.66)||4.34|
|Y Axis (-2 + 3.5)||1.5|
Boston Consulting Group Matrix (BCG)
Independent divisions (or profit centers) of an organization make up what is called a business portfolio. When a firm’s divisions contend in diverse industries, a separate strategy frequently must be developed for each business. The Boston Consulting Group (BCG) Matrix is designed exclusively to improve a multidivisional firm’s efforts to formulate strategies (David, 2005).
The BCG Matrix for Lockheed Martin is absent of information from its competitors. The first reason is that each company fragments their business units differently. Extensive research would be required to group products in like categories that span across business units. Secondly, Lockheed Martin has made several moves to divest in the commercial satellite industry, which makes significant changes in relevant data (Lockheed Martin, 2005b).
The BCG Matrix indicates that the Aeronautics business produces the highest revenue at 33% and growth rate of 15.48%. The Electronics Systems business unit produces the second highest revenue at 27% and maintaining the highest operating profit. The Information and Technologies Services business unit is the fastest growing with a 19.57% growth rate. The sales from satellites included in the Space Systems business unit that generates 18% of the revenue. Satellite sales consist of 60% of this business unit that has the lowest growth rate of 5.58%. Much of the growth rate is attributed to military contracts (Lockheed Martin, 2005b).
|Lockheed Martin BCG Matrix|
|DIVISION||REVENUE (In Millions)||Operating Profit||Percent Revenue||Growth Rate|
|Integrated Systems & Solutions||$3,850||$334||11%||12.57%|
|Information & Technology Services||$3,801||$285||11%||19.75%|
Grand Strategy Matrix (GS)
A Grand Strategy Matrix (GS) places a company in one of four quadrants based on two dimensions. These dimensions are competitive position and market growth. Each quadrant contains a list of appropriate strategies a company can take (David, 2005). Lockheed Martin falls into Quadrant I is reserved for companies that are highly competitive in a rapidly growing market. Strategies in this quadrant call out for market and product development as well as diversification and various forms of integration (David, 2005).
|RAPID MARKET GROWTH|
|Quadrant II||Quadrant I|
|Quadrant III||Quadrant IV|
|SLOW MARKET GROWTH|
|1. Market Development
2. Market Penetration
3. Product Development
4. Forward Integration
5. Backward Integration
6. Horizontal Integration
7. Concentric Diversification
Quantitative Strategic Planning Matrix (QSPM)
The Quantitative Strategic Planning Matrix (QSPM) is an analytical system created to establish the relative attractiveness of practical alternative measures. The QSPM for Lockheed Martin compares two alternatives. The first alternative is to commence in horizontal and backwards integration, including using resources to train skill labor employees. The other alternative is to forego integration and retain and redevelop what is left of commercial satellite production (David, 2005).
The matrix shows that horizontal and backward integration is more attractive to the goals of the company in every category apart from one. The only exception is that the future demand for advanced GPS may be benefited by retention of commercial satellite production (Lockheed Martin, 2005b). All other factors fail to find a solution to the direction that the company needs to survive in the future.
|Lockheed Martin QSPM|
|Horizontal/Backward Integration||Commercial Satellite Retention|
|2. Homeland Security needs||.10||4||0.4||2||0.2|
|3. Global War on Terrorism||.10||4||0.4||2||0.2|
|4. Sales to foreign countries||.05||3||0.2||2||0.1|
|5. Space exploration needs||.05||2||0.1||3||0.15|
|6. New markets (Naval)||.10||3||0.3||1||0.1|
|3. Environmental activists||.05||2||0.1||2||0.1|
|4. Political changes in the USA||.10||3||0.3||2||0.2|
|5. Boeing is the strongest competitor||.10||3||0.3||1||0.1|
|6. Interruption of materials||.10||4||0.4||3||0.3|
|7. Raytheon has a growing IT solutions business unit||.10||3||0.3||2||0.2|
|2. Adaptive to change||.05||4||0.2||1||0.05|
|3. Six Sigma implementation||.05||3||0.15||2||0.1|
|4. Political ties||.10||2||0.2||1||0.1|
|5. Diverse business segments||.05||4||0.2||1||0.05|
|6. Investments in new technology||.05||4||0.2||2||0.1|
|7. Military contracts||.10||3||0.3||1||0.1|
|8. Solid history||.05||4||0.2||3||0.15|
|9. Partnerships with competitors||.05||3||0.15||2||0.1|
|2. Dependence on military contracts||.10||3||0.3||2||0.2|
|3. Skilled Labor hard to find||.05||3||0.15||1||0.05|
|4. Shortage of machine tool suppliers||.10||3||0.3||1||0.1|
|5. Uses one supplier for essential materials||.10||4||0.4||1||0.1|
Income Statement and Balance Sheet
A projected income statement and balance sheet for Lockheed Martin is presented in the table below. Projected values for 2005 are based on industry expectations as well as the current company trend. It is assumed in 2005, that sales will grow by 11%. Debt and inventory levels are assumed to be lowered as the current trend and no indications are to the contrary (Lockheed Martin, 2005b).
|Projected Income Statement|
|(In millions, except per share data)||2004||Projected 2005|
|Cost of sales||33558||37249|
|Other income and expenses, net||121||150|
|Earnings from continuing operations before taxes||1664||1634|
|Income tax expense||398||380|
|Earnings from continuing operations||1266||1254|
|Loss from discontinued operations||0||0|
|Earnings per common share:|
|Lockheed Martin Corporation|
|Projected Balance Sheet|
|Cash and cash equivalents||1060||1100|
|Deferred income taxes||982||950|
|Other current assets||557||540|
|Total current assets||8953||8792|
|Property, plant and equipment, net||3599||3680|
|Investments in equity securities||812||700|
|Purchased intangibles, net||672||700|
|Prepaid pension asset||1030||980|
|Liabilities and Stockholders’ Equity|
|Customer advances and amounts in excess of costs incurred||4028||3900|
|Salaries, benefits and payroll taxes||1346||1350|
|Current maturities of long-term debt||15||14|
|Other current liabilities||1451||1400|
|Total current liabilities||8566||8364|
|Accrued pension liabilities||1660||1700|
|Other post-retirement benefit liabilities||1236||1200|
|Common stock, $1 par value per share||438||440|
|Additional paid-in capital||2223||2477|
|Unearned ESOP shares||0||0|
|Accumulated other comprehensive loss||(1532)||(1204)|
|Total stockholders’ equity||7021||6756|
Lockheed Martin is currently enjoying a renaissance period in the sales of products to the United States Department of Defense. The company is in the best financial position of its history. Only Boeing leads Lockheed Martin in revenue in the industry. However, Boeing’s dependence on commercial aircraft sales has caused the stability of the company to be questionable due to airline bankruptcies and the negative impact of September 11. Boeing will be forced to use their resources to aggressively compete in the military aircraft and Information Systems industries. Lockheed Martin needs to use this transition period to strengthen their core businesses before Boeing can execute their plans (Lockheed Martin, 2005b).
In contrast, Lockheed Martins dependence on military aircraft sales places uncertainty in the future of the company. As the political environment shifts, there are no guarantees that military sales will be able to drive profits in the future. This forces the company to seek new customers with diverse products around the world. The company must tackle their environmental problems to ensure that they are well respected by the government and society in the future. Gaining control of their suppliers and providing a pipeline for skill labor is an essential element for continues success. This can be accomplished by focusing on the core strengths of the company and purging products and units that are outside of their business core. Decisions that the company makes now will determine their stability in the future.
It is recommended that Lockheed Martin pursue horizontal and backwards integration to protect the company from instability in the future. Diversification, image, and control of suppliers will be the key to the success of the company in the future. This will be achieved by a combined effort by all business units within the company and by alliances with other companies.
The company has stated that they have the desire to strengthen the current business core of the company. Each project should be individually evaluated to see if it fits into the core of the business. If the project is outside of the desire parameters, the project can be sold or discontinued so that focus is placed where needed. The production of sales of commercial satellite equipment is a good example. In a market that has very little growth and demand, these projects should be shed from the company. The exception would be if the technologies are like that used in aerospace or missile-based products such as GPS and other advanced technologies.
Horizontal integration is necessary to attract new customers around the world. This can come in the form of acquisitions of other companies. However, wise decisions must be made in choices of acquisitions. Companies who produce projects outside the core strengths of the company should not be purchased unless those undesired units of the company can be liquidated without loss. The company must pay attention to Information Systems opportunities because it is the fastest growing unit in the industry. Additional naval technology is highly desirable since many components are used in aerospace systems. As an ideal, every business unit of the company should have a high level of continuity with each other to share advances in technologies with each other. Similar technologies can share additional recourses in production and design stages.
Backward integration is also highly recommended. Lockheed Martin must have better control over suppliers. The company needs to investigate investing in companies that produce raw materials for aircraft. They are currently using a sole supplier that has other customers such as Boeing, who may take precedence in delivery requirements. The company can be in the position to generate revenue by selling these materials to competitors.
The second area of backward integration would be to invest in companies that produce the tooling equipment that is needed for the company. With a limited amount of reliable companies available that can produce machinery tools for Lockheed Martin, a major weakness has formed (David, 2005). The company’s expertise in designing advanced aircraft should easily integrate into the design and production of the machines that help create them. This also allows the company to have control over specifications and modifications. The company can choose to sponsor technical schools or create their own program to train operators and technicians. When changes are made to the machines or processes, workers can be informed rapidly.
Lockheed Martin also needs to focus on improving their image as an environmentally friendly company. This needs to surpass the usual public relations statements made on brochures and on the web. The company has been under pressure by the government and environmental groups to have more accountability at their locations. The company should create a small but effective environmental team. Their duties would be to ensure that the company is complying with all environmental related issues, identify and clean previous contaminated sites, and to research methods to minimize future contamination.
Finally, it will be important for Lockheed Martin to continue to forge alliances with other companies to produce certain products. Northrop Grumman has virtually an identical business profit center system where the two companies should be competing at every level. However, the two companies have chosen to form a partnership together that benefits both organizations but beats other contractors for the bids. Although the two companies have been forbidden to formally merge, using each others strength to benefit both companies can be very attractive at this point (Wikipedia, 2005). There may be a time in the future where the United States government will allow them to merge.
To measure success, changes will have to be evaluated periodically. No specific timeline can be given to implement changes since various acquisitions may not be available when desired. It would be beneficial if all changes could be implemented within a five-year period.
Lockheed Martin has used two indicators that the company has measured its own success. These are Operating Margin and Return on Invested Capital (ROIC) (Lockheed Martin, 2005b). These indicators should be calculated as part of the evaluation. With each venture, the company will have to make investments with capital in some fashion. The RIOC can determine what impact the investment has placed. At the same time, Operating Margins must be measured to ensure that desired levels are being maintained. It would be ideal if funding from divested projects in the company be used to help fund horizontal and backward integration as well as the different programs suggested.
On a broader scale, evaluation can be used in the form of a revised IFE and EFE matrix. At the end of each fiscal year, the company can compare the new matrixes with the original matrixes to see if any progress has been made. Each potential investment must be evaluated before the purchase is made to estimate the effect on the strategy of the company. Together with a careful examination of finical records, the company will be able to track the impact of all relevant changes as they are made.
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©2018 Michael A. Hartmann
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