Organizational Profile of Lockheed Martin Corporation

This report builds an understanding of global strategy for Lockheed Martin into the Australian aerospace and defense market. It elucidates the dynamics of international strategy into new market entry evaluating the current business profile, financial performance, and A&D industry. Under the organizational profile, the report identifies the formation of Lockheed Martin as a 1995 merger between Lockheed Corporation and Martin Marietta, and by 2017, the corporation was able to make $51 billion in total sales. Further the report identifies the strategy of the corporation as to engage in flow-to-takt lean manufacturing encapsulated in Six Sigma processes to sustain a value chain it its products, system and services. The competitive edge is achieved through a mitigation strategy by partnering with other competitors in acquiring contracts and building products. An analysis of the Porters five forces competitive model allows isolation of Lockheed Martin in the industry from its competition, redefining barriers to successful entry into the Australian market. The PESTEL analysis further characterizes the Australian aerospace and defense industry vis-à-vis potential strengths and opportunities that are at the disposal of the corporation. The report concludes by identifying that successful entry into Australia is marked by comprehensive implementation of the global strategy, which redefines organizational value chain and remodeling it to suit a global value chain congruent to customer needs in Australia. Under this strategy, Lockheed Martin requires to exploit its full potential in R&D, innovations, design and development of systems and products that meet customer specifications and solve their security, defense and aerospace needs.

Introduction

The use of technology in security systems has advanced in the recent past with continued developments in computing and information technologies. High technology in security, defense, and aerospace industries are characterized by cutting-edge innovations and developments in modern-day technological advances (Hartung, 2010). Many companies and business organizations are transforming their business operations to integrate high-technological manufacturing. Among these business organizations are the Lockheed Martin Corporation, which invests in research, design, and development of advanced technological products, systems, and services that are sustainable and easily integrated into different industries. This report is a step-by-step application detailing the organizational profile of Lockheed Martin with the aim of redefining its strategic and competitive position in the security and defense industry.

Step 1: Organizational Profile - Lockheed Martin

Lockheed Martin Corporation formed following a 1995 merger between Lockheed Corporation and Martin Marietta, is an American business organization whose operations are focused on the delivery of advanced technologies in security, defense and aerospace industries (Hoover, 2011). The corporation is seeking a global presence in the market. Headquartered in Washington DC, Lockheed Martin registered a human capital capacity of more than 100,000 employees in 2017 and commanded the largest market share in the industry (Lockheed Martin Corporation, 2018). Approximately 93% of the employees are locally placed in the US, with about 21% enjoying the cover of the collective bargaining agreements under different labor unions.

In the formation of Lockheed Martin Corporation, merger negotiations between Lockheed Corporation and Martin Marietta commenced in the first quarter of 1994, followed by $10 billion merger approval on March 15, 1995 shareholders of the two corporations. The ownership of the formed corporation, as of 2017, in terms of share capital is held by institutional investors with Capital Group Companies, State Street Corporation, BlackRock, and Vanguard group being the major shareholders (Lockheed Martin Corporation, 2018). The corporate governance in the organizational structure is headed by a chairman of the board, board of directors, and chief executive officer, who doubles as the chairman and president of the corporation (Mohr, Sengupta & Slater, 2013). Every business segment is headed by an executive vice president, who is responsible for leading major innovation, development and business programs. All the employees placed in various business segments are categorized in different tiers, including program managers, functional teams, integrated product teams, and detailed product development. Lastly, a component assembly team is a tier for managing touch and floor workers whose relationships are managed and maintained through supervisors and labor unions.

The business operations of Lockheed Martin are broadly classified into four business categories including missiles and fire control (MFC), aeronautics, space, and rotary and mission systems (RMS). In their business operations, the corporation is engaged in research and innovations, planning and design, development, production, and assimilation of advanced and novel technology merchandise, systems and services (Mohr et al., 2013). The corporation is also involved in the dissemination of managerial, technical, engineering, and scientific services, in addition to the provision of far-reaching logistical, cyber-security, and system integration products and services. Essentially, Lockheed Martin serves customers within the US and in the international market with products and services that encapsulate defense and civil utility, as well as commercial applications.

The foremost client base for Lockheed Martin is different security agencies in the US government, with the company acquiring 69% of their net revenue ($51 billion in 2017) from the US government, mainly as a primary contractor or in sub-contractual dealings. In 2017 alone, 58% of its net sales of the company were from the Department of Defense (DoD), while the U.S. commercial and non-security customers and international security agencies accounted for 1% and 30% of their net sales, respectively. International client base consists of foreign military agencies that engage with the corporation on a contractual basis through the US government (Lockheed Martin Corporation, 2018). According to the 2017 financial report, the aeronautics business segment commanded a 20.1 billion in net sales, which accounted for 39% of consolidated net sales. Missiles and fire control (MSF), rotary and mission systems (RMS), and space accrued $7.2 billion, $14.2 billion and $9.5 billion in net sales, which represented 14%, 28%, and 19% of the total consolidated net sales of the corporation, respectively, in the same year (Lockheed Martin Corporation, 2018).

While operating in the milieu of expanding complexity in international security threat and increasingly fluctuating economic dimensions in the US and international market, Lockheed Martin majors in expanding the modern technology to space, defense, homeland security, intelligence, cyber-security and information technology (Daft & Marcic, 2014). In this regard, the corporation has set its business strategy to focus on enhancing the liability and quality of output of their products and services while bettering features in system execution and security capacity at the disposal of the US government, commercial and international clientele at reasonable prices (Walshe, Harvey & Jas, 2010). The organization of business segments is dependent on the attributes of products and services. The corporation deems to evaluate the potential its customers with respect to available resources in the development of their products and services into a competitive business domestically and in the global market to enthuse sales growth.

At the beginning of 2018, Lockheed Martin implemented new accounting principles, particularly the Accounting Standard Update (ASU) No. 2014-09, which espouses Revenue from Contracts with Customers standard. This standard, commonly identified as ASC 606, revolutionizes the attributes of revenue drawn from contracts with customers (Lockheed Martin Corporation, 2018). Second is the ASU No. 2017-07, which espouses Compensation-Retirement Benefits standards. This principle, amended as Topic 715, revolutionizes the attributes in the presentation of income statement of different constituents of net intervallic benefit cost linked to predetermined pension remunerations among other post-retirement remuneration plans.

The management of Lockheed Martin organizes its employees via a full spectrum leadership coupled to an LM21 program, which is based on the Six Sigma principles that are re-engineered to improve organizational and manufacturing efficiency (Walshe, Harvey & Jas, 2010). The senior management at Lockheed Martin constitutes the leadership councils responsible for assigning managers to accomplish process improvement events. Every manager is tasked with a team to lead stakeholders and suppliers towards process implementation. Notably, every tier leads a subsequent tier lower in the organizational structure, with the integrated products team being in charge of complete systems or production processes described in the Statement of Work in role contracts (Hartung, 2010). In a bid to improve and maintain quality, Lockheed Martin is engaged in diverse on-the-job training programs of the IPT teams, and continuously evaluating execution of different processes via a technical performance measure (TPM) system, which accentuates six sigma and lean processes. The mid-level management engages commitment approaches to espouse the congruency in high-performance workflow and human capital and relations theory (Morgan, 2014). Moreover, a flow-to-takt lean manufacturing process is exploited in production by utilizing scientific management, innovation, and division of labor through component assembly teams (Lockheed Martin Corporation, 2018). Basically, Lockheed management seeks to separate various tasks in lean manufacturing based on parts to actuate the postulates of the division of labor theory considering that differences in technological speciation enhance efficiency (Hartung, 2010). Lastly, the corporation exploits the double helix methodology, which amalgamates technology, research and experimentation, and the concept of operations in a warfighter to develop novel applications and weaponry.

Step 2: Strategy and Competitive Position

The current business strategy at Lockheed Martin is to focus on developing products and services that are able to accentuate modern advanced technology and at affordable prices. In particular, the corporation delves on lean manufacturing processes to ensure quality improvements, while enhancing the predictability of delivered products, systems and services, and in the execution of programs. Moreover, the corporation is striving towards developing stronger technological security and defense capabilities and their timely delivery to its clientele in the local and international markets (Gurgur & Morley, 2008). Lockheed Martin performs a continuous evaluation of contemporary market characteristics and has identified an increase of both complexities in international security concerns and economic dimensions within and outside of the US. As such, the company explores the resources at the disposal of its customers and associated constraints, and designs and develops products, systems, and services congruent to their needs and delivers them at affordable prices (Trott, 2005). This strategy is designed to match an ever-increasing corporate portfolio focused on affordability initiatives.

The performance of Lockheed Martin has been sustainable in adherence to the current mission, which states “We solve complex challenges, advance scientific discovery and deliver innovative solutions to help our customers keep people safe” (Lockheed Martin Corporation, 2018). In essense, it entails establishing solutions to complex challenges, forging forward scientific innovations, and outputting innovative technological solutions to promote safety through its client base (Gurgur & Morley, 2008). Coupled to its current vision, Lockheed Martin endeavors to reinforce security through advanced scientific discoveries in the manufacture and provision of products, systems, and services. One of the current core values at Lockheed Martin is exploitation of full potential to perform with excellence. In consideration of the Six Sigma strategy, the management and employees at the corporation work towards process improvement through innovative approaches ensuring the delivery of unparalleled defense, security and aeronautical applications.

SWOT Analysis

Strengths

Lockheed Martin is the major contractor of security systems and defense products around the globe. Secondly, the corporation commands a strong and wide client base with its major revenue collected from the US local market, particularly the Department of Defense. In this regard, it centers itself on the top spot in the list of US government contractors. Lastly, the corporation boasts a strong research, innovation and development with a core competency in human capital investment. The portfolio of Lockheed Martin is relatively strong with products such as ballistic missiles and missile defense elements, fighter aircrafts, ATC systems, space crafts, and satellites among others serving long-term contracts with different government agencies (Lockheed Martin Corporation, 2018).

Weaknesses

The corporation largely depends on government-aided contracts to maximize profits and accumulate revenue (Tidd & Bessant, 2013). As a result, Lockheed Martin implements a stractegy built on a low price approach. Lastly, the corporation has been linked to contract misconduct.

Opportunities

The major opportunity includes engaging in joint ventures, partnerships and acquisitions that further reinforces its market position while lowering market competition. In addition, Lockheed Martin requires to increase international contracts while reinforcing their global market share to decrease dependency on local government contracts. Increasing innocvations on defense products and security systems is another opportunity for the corporation considering its strong R&D investments.

Threats

The global competition from other A&D corporations is increasing continuously. Moreover, the US government is decreasing its expenditure on defense products. Global economic slowdown also poses a threat to the corporation’s business segment.

Another important consideration is the Global Strategy as a Business Model Change, which is characterized by corporate expansion of its business operations into foreign markets (de Kluyver, 2010). Lockheed Martin has, so far, actuated its global strategy considering the collaborations between the corporation and international clients, and its opening of 15 international remote offices. The regional locations are designed to meet international and country-specific goals and reinforce strategic partner business relations. Its major strength entails working in partnership with the US government to create a value chain with its clientele. In this regard, the company is able to reach its customers directly devoid of middlemen involvement. This strategy is superior to the Southwest Airlines Co. whose business model strategy entails the integration of complementary approaches which were designed to stimulate economic value. With a redefinition of the global business strategy, Lockheed Martin deems to overcome its weakness of primarily using the government-appraised customers (Tidd & Bessant, 2013). Under the global business model, the corporation is able to reinvent its core business values in the face of new entrants and competition following newer technological advances. Major competencies and achievements in 2017 have been recognized globally following adaptation to new market environments through innovations. For instance, customers in the US and international market have experienced and recognized the presence of F-35 fighter with fifth generation capabilities following its release (Lockheed Martin Corporation, 2018).

Step 3: Competitive Strategy Statement

The economic base of Lockheed Martin and its business segments focus on technological research, innovation, and development. The mission of the corporation is geared towards the establishment of solutions to complex challenges through scientific discoveries and innovative approaches. In consideration of the competitive advantage described in Stage 2 above, the corporation experiences an increasing demand for aircraft from its expanding market, thus outlaying a lower manufacturing and sustainable processes. Moreover, the corporation experiences challenges associated with the performance of partners and suppliers, development of software, increasing costs linked to operation cycles, warranties and operation sustainment, as well as inadequacies related to successful negotiations and release of funds to finance production contracts in a timely manner (Lockheed Martin Corporation, 2018). Lastly, while the corporation negotiates its contracts in conjunction with the US government, in the event the government enters into a unilateral agreement with the international market, the corporation is obligated to transact under the business terms, which the government defines, thus influencing cash flows and profit margins.

The key organization processes at Lockheed Martin include strategic planning, human capital investment, research and technology development, product testing, distribution, and training of client personnel. Below is Figure 1, which is an illustration of the Porter’s Value Chain Model, exploited to sustain a competitive edge in the industry.

Figure 1: Porter’s Value Chain Model at Lockheed Martin (Author, 2018)

Strategic planning allows the corporation to develop approaches for reaching out to local and international customers, understand their security, defense and/or aeronautical needs, and develop advanced technology products, systems, and services tailor-designed to meet those needs while enhancing security to the local and global community (Malaval, Bénaroya & Aflalo, 2013). Lockheed Martin invests largely on its human capital by recruiting personnel with vast training and knowledge on modern combat technology and engages in continuous training and development of human resources to stimulate endless innovations into designing superior products and systems. As such, continuous research and technological development ensure that every new product and/or system is built with cutting-edge design, which is an add-on to the previous versions. According to the 2017 financial report, Lockheed Martin expended $1.2 billion in 2017 up from $988 million in 2016 on R&D, which was charged to the total cost of sales. The corporation performs thorough testing of its products and systems prior to their distribution to various destinations locally and internationally. In addition to product testing, the corporation performs training of end-user personnel, while performing technical and customer care support through its RMS business segment.

Step 4: Market and Financial Performance Data

According to the financial report of 2017, Lockheed Martin recorded a 32% total return, which was reported to stockholders as a component of the 307% of total return accumulated in the preceding five years (Lockheed Martin Corporation, 2018). In the same year, the corporation totaled $2.0 billion of share repurchase, with an associated increase in share repurchase authority to enhance share flexibility. A $2.2 billion dividend pay-out was made in 2017, which was followed by an increase of dividend by 10 % ($8.0) on a yearly term. In total, Lockheed Martin made an 8.0% increase in total sales from the 2016 index to make a $51.0 billion with associated $5.1 billion segment operating profit, recording a 10.0% segment margin in 2017 (Lockheed Martin Corporation, 2018). Consider the financial performance data of 2017 in the Appendix I. In consideration of the reported financial performance data, Lockheed Martin is anticipated to generate more cash on investment over the next three years based on the implemented robust cash generation, reinforced operational performance, and far-reaching business and cash deployment strategy.

Step 5: Industry Analysis

The primary competition in the industry of security, defense, aerospace, and information technology is based on superiority on the quality of products and systems developed, the level at which they meet the needs and expectations of end-users, and how they are able to circumvent security threats. In the industry, the major competitors of Lockheed Martin include the United Kingdom’s multinational BAE systems, the Germany-based Airbus (Cassidian, Airbus Military), and the France-based Dassault Group. Other important competitors include Boeing, Eurofighter Jagdflugzeug GmbH, Northrop Grumman, Raytheon, Finmeccanica, General Dynamics, the Swedish aerospace and defense corporation Saab AB, and Panavia Aircraft GmbH (Needham, 2018). Lockheed Martin partners with local and international companies that are non-competitors in order to host optimal skills-mix that delivers diverse specific needs requirements. Another strategy is collaborating with competitors considering the uniqueness of the defense and aerospace industry (Sullivan, 2010). For instance, Lockheed Martin and Boeing are major competitors have partnered in building the Hellfire Systems, LLC, a joint enterprise for research, design, and development of AGM-114 Hellfire Missile, and are both engaged in the F-22 Raptor defense program contract.

Starting venture into the aerospace and defense (A&D) industry requires large capital investment to institute R&D, innovation, and acquisition or outsourcing of manufacturing machinery (Needham, 2018). Moreover, the primary barrier to market entry is steep competition from already existing and established competitors enjoying a large percentage of the market share. Importantly, Lockheed Martin experiences steep competition in the government-aided bidding, while consumer requirements fluctuate continuously, which stimulates the expansion of the competition to commercial access for space applications and exploration.

Current trends in the A&D industry is the focus on R&D with intentions of innovations and new higher capabilities. According to Sullivan (2010), many corporations in the industry are focusing on defense contracting irrespective of the risk-averseness of the industry. As a result, corporate management opts returning capital to shareholders under dividend payouts and share buyback programs. In the global market, corporations in the A&D industry invest lower capital on R&D in recent years as compared to other sectors of the economy. With respect to innovation intensity, the percentage of sales assigned for R&D is relatively low in the US commanding 3.6% when compared to 5.1% in the European market (Needham, 2018). In the recent past, efforts on R&D have been slow in making major successes in the A&D sector slow. As a result, Lockheed Martin increased its potential in making partnerships with different players to understand consumer preferences and changes in lifestyle, thereby becoming competitive in the industry. In addition, the corporation has identified commercial technology entrants in the market, who are posing a major threat in the development of new superior technologies, while innovating more rapidly. Seeking collaboration with these commercial technology entrants in innovation, design, and development is a critical success factor.

Step 6: Porter’s Five Forces Competitive Model

The Porter’s five forces framework provides an analysis of the A&D industry in an assessment of whether global expansion is possible for Lockheed Martin, particularly into the Australian markets (Hartley, 2015). The understanding of the framework underscores the competitive forces Lockheed Martin anticipates to encounter and revelation of industry profitability (McGrath & Gourlay, 2013). The five forces include entry barriers, the intensity of rivalry, bargaining power of buyers, bargaining power of suppliers, and threats of substitutes.

Entry Barriers

The industry of A&D is characterized by a large capital investment of financial and human resources in order to build a business venture, sustain it and succeed in the market. In addition, it requires Lockheed Martin additional expenditure on R&D, an endeavor that expends time longer than two years to manufacture and deliver a quality product, system and/or service. Lockheed Martin requires significant capital flow, develop a strong technical capacity and prepare proposals captioning their progress. A primary competitor, Boeing, invested more than $2 million in three years to generate the required technological competence for the development of the first stage of Saturn 5, while its counterpart Grumman expended an equivalent financial input in research and develop proposals. It is postulated that Lockheed Martin will invest an even larger input in facilities to enter the Australian market. Legal requirements and compliance with the stringent regulation in the industry is a primary barrier in a new market. As such, compliance with diverse laws on liability is a central tenet of penetrating into newer business environment vis-à-vis the global environment.

Intensity of Rivalry

Different large corporations engage in intense competition for government and commercial contracts. Among the top competitors include Boeing, BAE Systems, and Airbus. The market is largely dominated by these multinational corporations in the provision of defense equipment and security systems. While competition is high between these large MNCs, Lockheed Martin developed and implemented a strategy of partnering with its competitors to cushion itself from high intensive competition considering their presence in defense and aerospace industry of many countries. On the other hand, contracts in this industry are long-term, which has resulted in an increase in rivalry with companies investing more in R&D to build unparalleled products, systems, and services.

Bargaining Power of Buyers

Although contracts in the A&D industry are large, the financial resources of contacting governments offset the power of these MNCs. Partnerships and consolidation have been shown to decrease the number of players in the industry. For instance, in 2011, different mega contracts emerged with many companies security them. In the subsequent year, the US government reduced its budgetary allocation for the A&D industry (McGrath & Gourlay, 2013). Therefore, it constitutes a strong bargaining power between mergers and partnering MNCs, such as Lockheed Martin and Boeing, and their customers to develop a strong pricing strategy.

Bargaining Power of Suppliers

The complexity of special-purpose products and systems intended to operate in extreme environments requisites the integration of advanced technology in their development. As a result, suppliers of these components are paramount in the venture although their customer platform is narrowed by-product customization (Hartley, 2015). The number of customers is low while they assume high product quality. The availability and quality of raw materials define the output quality. Considering that raw material suppliers are not necessarily in the A&D industry, their number is high leading to dilution of their power.

Threat of Substitutes

Alternatives, for instance for an efficient aircraft for combat, take long periods of time to design and develop, usually longer than 10 years. On the other hand, products and systems are not price-sensitive making potential buyers to be constrained financially (Hartley, 2015). A&D technologies are complex to design and the majority are patented. In consideration of the small number of manufacturing firms and the need for customized products, it is difficult to development of substitutes.

Step 7: International Expansion and Global Market

Global market expansion of Lockheed Martin to the Australian market is welcome based on several factors. First, the international strategy should focus on investing in information technology with the design and development of information systems to bank information and tactics of security threats. The approach is ideal for the corporation to generate additional revenue by developing IT solutions that command real-time processing and managing of information to aid security and defense strategic decisions (McNair, 2010). Second, international strategy at Lockheed Martin deems to focus on cybersecurity in the Australian market considering the continuous growth of the industry by 11.3% from $63.7 billion to $120.1 billion in 2017. Third, investment in unmanned aerial vehicles (UAV) deems to generate additional revenue considering the prevailing increase in commercial demand (Hampson, 2012). The global demand for UAV is expanding exponentially, with the US recording a 4.3% increase in 2015 (Chong, 2016). In partnership with China, Lockheed Martin investment in informatized war constitutes a security and defense tactics application as an integrated international strategy.

Step 8: PESTEL Analysis

Expansion and successful entry into the Australia market requires the implementation of a global strategy that understands the needs of the foreign market. Below is an explication of the political, economic, social, technological environmental and legal factors that define the A&D industry of Australia in relation to the business position of Lockheed Martin.

Political Factors

The political environment and regulatory structures in Australia are fully established, secure, open and progressive for investment. The country espouses a high degree of investment certainty and investor confidence. The strength of business success in Australia is based on highly efficient political systems in relation to policy direction and economic challenges (Leinwand & Mainardi, 2016). The current policies on the A&D industry are geared towards R&D, and innovations to steer the country’s development agenda and exploiting the full potential of its human and natural resources to keep its people safe. In line with the corporate mission statement, Lockheed Martin deems to engage the Australian government through the US counterpart in policy making and politico-corporate lobbying to facilitate industry entry. Moreover, the country boasts a strategic time zone, a well-trained, skilled technical multi-lingual human capital, and a competitive cost base.

Economic Factors

The economic growth rate of Australia is higher compared to various OECD countries, with a GDP superior to the UK, France and/or Germany (Leinwand & Mainardi, 2016). In view of its emerging market in the A&D industry, Lockheed Martin would benefit from stable interest rates, relatively low inflation rate, and low operating costs due to the consistent growth in GDP.

Social Factors

Globally, commercial air travel is experiencing a dramatic growth. As a result, companies in the A&D industry are reporting high returns on investments, including those operating in the Australian market. The education system in Australia is strong producing talented technical experts in diverse fields of engineering and aeronautics.

Technological Factors

While universities are striving to develop talent through training, the Australian population is working hard to enthuse technological research, innovations, and development (Leinwand & Mainardi, 2016). Different corporations are equally investing in R&D, and Lockheed Martin requires extending its investment on technological innovations to commercial A&D products and security systems.

Environmental Factors

In Australia, the government implemented the Impact of Proposals as the Environment Protection Act of 1974, which defines the protocols for commanding environmental conservation in government, public, private and commercial decisions (Leinwand & Mainardi, 2016). It is requisite for all corporations, local and international, to evaluate the environmental impact of their business ventures and develop sustainability initiatives that are geared towards reduction of carbon footprints in the atmosphere.

Legal Factors

Different investors in Australia are required to work and trade in compliance with government regulations and sanctions. MNCs, such as Lockheed Martin, are obligated to understand the requirements of t