Introduction a key indicator of LM’s success

IntroductionLockheed Martin is a Business to Government(B2G) aerospaceand global defence company headquartered in Bethesda, Maryland. Currently it employsapproximately 97000 employees in the United States (US) and worldwide.

LockheedMartin Operates in 4 core business segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, SpaceSystems Lockheed Martin (LM) is most famously known as the largest militarydefence contractor in the world. Its Largest Customer is the United StatesDepartment of Defence (DOD) making its largest consumers the United StatesArmed Forces. This Report will aim to analytically analyse why Lockheed Martinis successful, for the purposes this report the focus would be on theLockheed’s Aeronautics business segment specifically it advanced militaryaircraft projects.  Market & ProductsThe US has the largest Military defence market in theworld with the US accounting for 37% of the world’s top 6 country’s defencespending in the year 2016 Spending a total of around $611Billion. As stated earlier LMis the largest global defence company with a $14 billion difference in defencerelated revenue between it and its nearest competitor Boeing, this is a keyindicator of LM’s success. According to the Lockheed’s 2016 financial report its 2016 salesamounted to $47.2 Billion of that 17.

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8 billion was attributed to Aeronauticswhich accounts 37.7% of total sales, the highest of the 4 core businesses . Lockheed also sawprofit of over $3.6 Billion and operating profits of $5.

6Billion. LockheedMartin is tagged as the world’s foremost leader in the design, manufacture andsupport of military aircraft. It offers a mix of physical products as well as support systems,training and systems integration services, ensuring that they are one stop shopfor most of the customers military aircraft related needs. This ensures thatthe Lockheed martin can profit from a greater part of the value chain and notjust one, this is one of the many things that makes LM a successful company.Amongst its products in the advanced military aircraft segments are the F-16fighting falcon and the F-35 Lightning II are arguably it’s best sellers withthe F-16 selling 4,576 at a unit cost of $18.8Million. The market that LMoperates in is highly competitive one although it is an oligopoly especially inthe advanced military aircraft segment where LM’s main competitors are Boeing.

Thismarket is governed by contracts meaning that companies do not sellpredeveloped/manufactured products but instead they bid for and are awardedcontracts to develop products based on the militaries needs at the time. The industryoperates on a multistage contract, first the military decides it wants a newaircraft to serve 1 or sometimes all three of its branches, it then proposesits requirements to several defence companies. The companies then respond withtheir design concepts at this stage only a few with the best designs areselected to move forwards. Then the governments funds the development ofprototypes for their designs which then compete against each other to selectthe ultimate winner of the contract.

Contracts are awarded this way to stopcompanies from bankrupting themselves trying to win a contract.   SWOT  Segmentation, Targeting & PositioningIt is easy to assume that alldefence companies are weapons manufacturers however this is not the case,weapons manufacturing is only a segment of the defence industry albeit thelargest, but still one of the many. According to Lockheed martin 2016 investorsdocument it operates in 4 business segments, Aeronautics, Missiles and FireControl (MFC), Rotary & Missions Systems (RMS) and Space Systems. It’sAeronautics business segment caters 100% to the military defence industry. Dueto the nature of the industry segments are established from military needs asdeemed by its own analyst e.

g. fighter mafia (an analyst group that advocatedthe creation of dog fighter type planes), and not by the companies. The advanced militaryaircraft segment Is the most important part of Lockheed’s portfolio not justbecause it makes the most money but also because it’s important to their numberone customer who pride themselves in having the best air force in world. Thismeans that this is the segment they are most willing to spend the most moneyon, this is evidenced by the record setting $200Billion contract recently givento Lockheed Martin.Due to Lockheed Martins size the are able to producemultiple product servicing the military aircraft segments e.g. fighter jets(F-22 raptors), helicopter (Black Hawk) and cargo planes (C-130JSuper Hercules).

  With this variety of product, they can targetdifferent military branches. Since sales to the governments both foreignand domestic account for 100 % of their aeronautic sales it would be sufficientto consider government officials as their target audience. They however do nottarget the whole government because it is extremely costly and inefficient,their strategy is to only target those involved in the decision-making processor those who influence it i.e. the end users. Their main target includes toplevel general’s senators congressmen and women and special subcommittees set upto manage military purchases that go through the pentagon. They target thisaudience via various lobbying efforts and something called political engineering.

Political engineering essentially taking advantage ofthe military industrial complex to maximise a projects economic impact andreduce its likely hood to be cancelled. For this reason, many have deemeddefence companies to large to fail. A prime example of this can be seen in therecent joint strike fighter project. The F35 project is estimated to createover 146,000 direct and indirect jobs across 46 states, parts are manufacturedall over the country maximizing the economic impact and ensuring bipartisansupport in congress. Lockheed martin hired subcontractors in several othercountries and has received orders from 11 allied countries including the UnitedKingdom, ensuring that anything done to hurt or cancel the project could affectinternational relationships. This strategy has made the project nearlyimpossible to cancel and ensured the future of the project. This shows thatLockheed has fully understood the governments needs and therefore tailored itsproduct accordingly. Due to the nature of contracts that Lockheed martin goesafter it is positioning it’s the best place to go for military aircraft.

It isalso taken up a position as a provider of systems integration and trainingservices for the US military.Lockheed Martin prides itself as an innovative problemsolver, its mission is solving complex challenges, advancing scientificdiscovery and delivering innovative solutions all to help its customers keeppeople safe. Its mission simply put is to become a global leader in supportingtheir customers’ missions, advancing scientific discovery and strengtheningdiscovery. Analysing these two statements it can be deduced that LockheedMartin is a customer focused company tailoring the products they createspecifically to their customer needs. LM has on its employee sheet a host ofmilitary advisers that advise on the current needs of the military. In additionto this 1 in 5 employees are former military personnel this gives them an edgeover competitors as it puts them in a better position to understand what the militaryneeds.

Work ForceAs of December 31, 2016, approximately 21% ofemployees are covered by various collective bargaining agreements . On any given year afew of these collective bargaining agreements may expire, historically LM havebeen successful in negotiating renewals without any delays or disruptions to operations . This demonstrates anability to properly manage work force, something that helps them remainsuccessful. Of their 97000 employees 49000 (50.5%) of them are engineerscientist and information technology professionals showing just how big technologicaladvancement is to the company. The company’s operation, unfortunately, fallsunder International Traffic in Arms Regulations (ITAR), this regulation onlyallows them to hire US citizens due to the nature of the technology theyhandle.

This limits the pool of talent they can hire from, where othercommercial companies have access to the Global engineering talent pool Lockheedare limited to America and its territories. Its is possible to get exceptionsfor ITAR, but, the process is extremely difficult so therefore is usuallyreserved for experts with sort after knowledge of important complex fields.Even then there are still restrictions on what they may or may not have accessto. This also limits Lockheed’s ability to collaborate with its owninternational offices. Another measure put up by the US, is the securityclearance, it requires that personnel working on project or with technologiesdeemed as classified must first obtain a security clearance. This makes it moredifficult for Lockheed to hire consultants to help on specifically challengingprojects even if they are American. Lockheed martin is also in charge of makingsure that all its suppliers abide by the rules and obtain security clearanceswhere and when necessary.As part of Lockheed’s commitment to small businessesthey have committed $4.

3Billion to over 9,900 small businesses. They have over16000 employees in every state across the US and over 1500 suppliers across theglobe generating over 19.5 and 9.6 billion respectively in revenue for thosesuppliers. For a lot of their suppliers Lockheed Martin is their biggest if notone of their biggest clients and therefore most of the power lies withLockheed. On the other side the US Government is responsible for 71% ofLockheed revenue so the government holds the power in this relationship. Thisessentially means that the government sets the terms of the contract which willultimately determine how Lockheed sets the terms of its contract with itssuppliers.Lockheed martin is known for its technologicallyadvanced and high-performance military aircrafts.

In 2001 LM won a $200Billion contractover their main competitor Boeing to develop a Joint strike fighter (F35-LightningII) to replace several already existing military aircrafts. The reason LM wonthis contract was due to the fact that their prototype far outperformed its competitor . Lockheed Martin’sF35-Lightning II has been deemed to be the most technologically advancedmilitary aircraft in the world which is a big selling point for the product anda reason for its enormous success. Their main competition in the military aircraftsegments are terms of size and capability are Boeing. In general Lockheed isconsidered to be better than Boeing considering that they are the number onedefence contractor however Boeing is said to have better expertise in the fieldof unmanned military aircrafts (drones) which are becoming more popular can beseen as a direct competitor to manned military aircrafts. Recently a substitutefor military warfare that threatens to completely replace or at least reduceits importance is cyber warfare. Via cyber warfare economies can be put intodisarray, cyber warfare can be undermined governments it is a new and moreeffective means of war, all the pros without the cons.

If cyberwarfare were tobecome the main means of warfare it would reduce the militaries dependence onthe support systems that Lockheed provide, not only will the halt future ordersbut they will start to scale back use of current equipment and it supportservices. In conclusion Lockheed Martin success is largely dueto their close relationship with the government and their ability to manage anduse those relationships to their advantage, ensuring benefits such as tax cuts.Lockheed Martin have excelled at forming strategic alliances with key decisionmakers in the Department of Defence (DOD) and military as well as gainingCongressional Support. Most of the contracts Lockheed Martin engage in with the(DOD) result in profits for them. The brilliance of Lockheed lies in being ableto engineer a seemingly failure into their success.

The brilliance of Lockheedlies in being able to engineer a seemingly failure into their success,sometimes profit. The most notable of these is the F-35 Project which manycritics have criticised to be failing due to many setbacks and budget overruns,but somehow has still resulted in a profit for Lockheed Martin. Thanks toexcellent political engineering & lobbying the government is unlikely tocancel the project but instead increase funding and its orders something it hasalready done.


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