A Situation Audit for Lockheed Martin Corporation

Erica Johnson

University of Maryland Global Campus

MBA 610 9042 Leading Organizations and People (2222)

Donald Shandler, PhD

May 13, 2022

Executive Summary

Lockheed Martin Corporation (LMC) is the world’s largest and one of the most successful defense and aerospace company. Although LMC’s business has grown, it hasn’t done so without facing some challenges. Unexpectedly, it suffered a scandal in 2014 after a whistleblower revealed that Lockheed Martin paid the U.S. government illegal kickbacks for military equipment contracts worth $3 billion since 1995. After disclosure of these practices, public moved away from LMC stock to pursue safer investments elsewhere which resulted in its price dropping 42% by 2015 as well as lost market share due to competition from diversified firms such as Boeing and Raytheon Company who generated more profit than LMC throughout 2014 – 2015 period (AlSuwaidi et al).

A situation audit for Lockheed Martin Corporation will comprise of the followings: Analyzing LMC’s situation by frame of reference and provide its current status, business trends, and important issues. Justifying the actions taken in the past by LMC to analyze the reasons for poor performance by LMC and recommending possible future actions to be taken by LMC before the situation becomes irreversible. Suggesting solution for solving the issue based on your findings such as setting up a company-wide strategy, conducting internal restructuring or hiring more employees to develop, implement and maintain strategy.

Lockheed Martin Corporation has been doing great in most aspects but the company has been facing a few problems which have resulted in a negative impact on its revenue and market share. A situation audit for LMC will address various issues. Decrease in Revenue from Business Segments and Key Programs. In 2014, Lockheed Martin had a net sale of $44,917 million but suffered a drop to $43,642 million by 2015 (Mavridou et al., 2020). The company also reduced its revenue from 2014 to 2015 by $1.8 billion as it sold fewer products that year as compared to previous years.

A Situation Audit for Lockheed Martin Corporation

A situation audit involves assessing an organization’s current situation and making recommendations for improvement, through a variety of different metrics, programs, policies and initiatives. This article will provide some examples of what’s been developed to help Lockheed Martin Corporation improve in the following areas: Business Process Improvement; Employee Engagement; Leadership Effectiveness; Governance Effectiveness; and Design for Sustainability. One of the key components to improving a situation is recognizing that there will be no one circumstance or level of performance that will lead to success. The key to success often depends on the combination of multiple factors including the amount of work with minimal effort, opportunities for improvement and lessening the opportunity for failure. Breakthroughs require more than one person.

There are two types of improvement – incremental and revolutionary. Incremental improvements are made in many small, easily identifiable steps typically included in a business process improvement program. Revolutionary improvements are often more difficult to identify but can make a significant difference if they occur within organizations or industries at their inflection point.

The situation audit will also involve audits of operations and processes, which in the context of Lockheed Martin Corporation, entail: Evaluate the success or failure rates for Lockheed Martin Corporation projects; Review challenges faced by Lockheed Martin Corporation including personnel challenges, workforce size, workload distribution among employees and skill sets. ; Review current financial standings for Lockheed Martin corporation and its expenditures versus revenues; Review capital expenditures for Lockheed Martin corporation in relation to investments made by competitors in similar sectors; Provide recommendations on future investments needed to be made, as well as maintenance costs that should be projected into the future budgets.

A situation audit will serve as an evaluation of an organization’s current situation as well as make recommendations to improve the organizations strengths and overcome its weaknesses. There are four areas that should be examined in a situation audit: Leadership; Governance; Design; and Business Processes. This area will specifically address the business processes within Lockheed Martin Corporation including operations and management processes, which entail: Employee Engagement; Business Process Improvement; Governance Effectiveness, and Design for Sustainability. Employee engagement is a key factor within the success of any organization because it directly affects the productivity level of employees.

Fact Sheet

Lockheed Martin Corporation is a defense contractor, originally formed by Lockheed Corporation in the United States of America to undertake projects for the United States Department of Defense. The company is headquartered in Bethesda, Maryland and its largest industrial plant occupies almost 10 million square feet (930 000 m2) on the site of the former Montgomery Ward Warehouse Complex in northwest Chicago (Lockheed Martin Corporation n.d). The field offices are mostly located worldwide with a focus on military aerospace, information systems and defensive technology. LinkedIn is their social media platform.

Lockheed Martin has helped shape the 21st century with its developments in the areas of aeronautics (aviation), space exploration, hypersonics propulsion systems and nuclear engineering.

Lockheed Martin also offers a variety of products ranging from missile technologies to satellites. The company was founded on October 14th 1943 by Clarence L. “Kelly” Johnson under the name “The Lockheed Aircraft Company” (Davies, 2019). Since then, it has taken pride in advancing US defense systems by developing innovative technologies with major global implications in aeronautics, navigation & guidance as well as other surveillance technologies such as radar (Allen et al., 2014).

Lockheed Martin has a unique relationship with NASA’s Jet Propulsion Laboratory (JPL). The two organizations partner in many areas, including robotics and space exploration, with JPL providing critical technologies for new projects that are later produced for government agencies as well as some commercial entities. Their mutual cooperation recently resulted in the production of high-quality 3D printed parts for Lockheed Martin’s Advanced Test High Energy Asset (ATHENA) project, a satellite set to launch into orbit this year (Petrescu et al., 2017).

Mission, Vision, Values, and Goals

Lockheed Martin’s mission, vision, values, and goals are as follows:

Mission: “We solve complex challenges, advance scientific discovery and deliver innovative solutions to help our customers keep people safe” (Lockheed Martin Corporation 2022). This mission means that the company is in place to provide solutions to complex issues, advancement of scientific discovery and provision of channel where innovative solution in the industry can be sought to help ensure the safety of the people their customers serve. This is clear especially based on the fact that the company deals with government agencies and hence the end user impacted by the technology is the citizen. Ensuring that the end user is safe is paramount and hence all decisions, innovations and advancements must be based on this mission and all operations aligned to it, which is an actual reality for the company.

Vision: “Be the global leader in supporting our customers’ missions, strengthening security and advancing scientific discovery” (Lockheed Martin Corporation 2022). Lockheed Martin envisions itself as a leader in supporting its clients’ missions in areas of security with a clear focus on advocating for scientific discovery.

Values: The company identifies its core values as; Do What’s Right, Respect Others, and Perform with Excellence (Lockheed Martin Corporation 2022). For the company to achieve its vision of being a global leader, it has recognized that it must respect issues such as diversity, human rights and good labor practices as well as quality driven performance. Thus, the company directly indicates that it values and admire doing that which is right in all situations and circumstances; maintaining self-respect and respect for others; and ensuring that all performances are geared towards excellence.

Thus, there is a good alignment of the company’s vision and core values. It makes sense, therefore that as a company that has been dealing with public agencies and governmental organization, its impact on the larger society is significant. Upholding the above values on a global scale will help to achieve the vision and by extension assist in realizing the broad mission of being dedicated to innovation to solve complex global and local challenges.

Goals: Besides being guided by the mission, vision and core values, Lockheed Martin has strategic goals that are short-termed and evaluated every few years. The goals are based on prevailing issues in the industry and also in the external environment and are designed to support its mission and vision. For instance, there are the Go Green Goals set in 2016 as the baseline to immediately reduce per-occupant waste by 11%, energy use by 14% in 2025 and overall carbon emission by 70% in 2030 (Lockheed Martin Corporation 2021). These professionally crafted strategic goals are set in the background of the climate change debate.

Strategy And Objectives

The main strategy used by Lockheed Martin is to survive in the market by offering a range of products. One strategy that is successful is the use of subcontracting to ensure that the company has the resources it needs to survive.

“Think like a customer”

Lockheed Martin is customer driven. Being customer driven helps to ensure that their products are what the customers want, by using feedback from customers and also asking them when designing new products. This strategy has made Lockheed Martin customer driven which has allowed the company to survive over time because they have a market for their products and there is always demand for more. Being customer driven helps ensure that Lockheed Martin provides the best customer service possible so as not to lose its reputation of being one of the best companies in its industry.

“Think like an ally”

When customers have the support of allies then it means that they have loyal customers who are less likely to go to a competitor company. This ultimately helps ensure that Lockheed Martin, the customer and their allies have a good relationship. This strategy also allows for easier business transactions such as when competitors buy products from Lockheed Martin. The relationship between these companies is fairly positive as there is mutual respect for each other’s work and this helps ensure that there are fewer issues between them. This strategy ensures a stable environment leaving no room for competitors to try and steal their loyal customers or cause problems in business related issues.

There are three main objectives achieved by this plan:

– Manageability: Ensuring that there are no complications leaving Lockheed Martin in a difficult situation.

– Technical Intelligence: Ensuring adequate resources so as not to make many mistakes which could weaken Lockheed Martin’s competitiveness and lead to failure.

– Productivity: To produce more products with less effort and knowledge so as not to increase costs significantly.

Strategy Types and Competitive Advantage

Strategy types in Lockheed Martin involve two main approaches, namely value-creating and cost-reducing strategy. A company’s competitive advantage can be generated through a better quality product, lower price, an innovative service, or a new distribution channel. Lockheed Martin’s strategy types are often used interchangeably in the literature but diverse and distinctive. Technological innovations by Lockheed Martin have been driven by an aggressive R&D program (Davies, 2019). Using advanced technology, they generate new products to enter new markets usually related to a particular product on which they would focus on (Benusa et al., 2012).

Lockheed Martin’s strategy has three major components: global operations, vertical specialization, and R&D investment (Vera, & Rodriguez-Lopez, 2004). Firstly, the company’s global footprint covers all the major global markets except mainland China and Russia. Secondly, Lockheed Martin is highly specialized in a few defense segments that are critical to national security such as aeronautics, electronics and information systems, shipbuilding, space systems, and tactical aircraft combat systems.

This corporation has global strategies, corporate-level strategies, business-level strategies, business-level strategies, and functional-level strategies. Global strategies are the strategies that are implemented at the corporation level, and corporate-level strategies are the strategies that are implemented by the corporation as a whole. Business-level strategies are the strategies that are implemented by a business unit as a whole to achieve targets, whereas business-level strategies are strategies implemented at the business unit level. On this basis, Lockheed Martin can globally compete for market share in all five business units and achieve its long-term objectives through its function-level strategy.

Lockheed Martin has chosen to focus on protecting national security and health and safeguarding US domestic industries by developing advanced technology. The company is positioned in both defense and civil aerospace markets. The current functional-level strategies of Lockheed Martin that are used to achieve the company’s long-term strategic objectives include operational excellence, technology leadership, and global competitiveness (Petrescu et al., 2017).

The company’s operational excellence strategy is key to delivering superior customer support, transactional excellence, business productivity, overall organizational performance, compliance with legal and regulatory requirements, continuous improvement in operations and resources based on lean principles. Lockheed Martin has focused on its core competencies as a global defense contractor for nearly 100 years (Hughes, 2015). The key elements of its technology leadership strategy include: investing in innovation; acquiring new technologies; leveraging its intellectual property rights portfolio; developing innovative solutions; and implementing world-class research and development (R&D) programs.

When you are looking for an equipment supplier, you should consider the different strategy types in Lockheed Martin before making a final decision. This is because the supplier’s strategy will influence how they conduct business in other areas of the globe and regionally. A supplier with a cost-reducing strategy might not invest as much money in research into developing new products. However, if a company has a value creating approach to their strategy, then they would invest more money into research or spend more on advertising to promote their product over cheaper alternatives (Petrescu et al., 2017).

Lockheed Martin’s competitive advantage ranges from unparalleled human capital and technology, immunity from market forces, congressional ties and inseparable lobbying, and a monopoly on government defense spending. Lockheed Martin’s privileged position in the defense industry was made possible because the United States government has granted this company immunity from market forces due to its special relationship with the U.S. government. Consequently, Lockheed Martin is shielded from the consequences of competition (Petrescu et al., 2017). Unlike its competitors, Lockheed Martin effectively receives a government-granted monopoly through sole-source contracts and unique legislative exemptions. As a result, it can charge whatever price it sees fit without fear of losing customers or business.

This privileged position was made possible by effective lobbying to ensure that the government chooses Lockheed Martin and its subsidiaries to maintain U.S. military superiority, because the company has made unbreakable political connections throughout Congress (Benusa et al., 2012). Without these connections, it is not likely that Lockheed would receive such favorable contracts as those issued by the Northrop Grumman Corp. or the Boeing Co.

Sources within Congress have revealed that Lockheed Martin has a monopoly on U.S. military spending, and has been granted exclusive rights to the lion’s share of government contracts by the federal government because of its status as a national security contractor. This influence over defense spending makes Lockheed Martin’s market position extremely powerful and provides it an insurmountable advantage over its competitors.

Lockheed Martin also enjoys an extraordinary degree of immunity from market forces because of its close ties to the government and meddling in national security affairs and foreign policy in an effort to maintain U.S. superiority. The company’s innovative human capital and technology effectively provides it with a competitive advantage that other companies simply cannot match. Lockheed Martin’s ability to deliver superior products at low prices, coupled with its unconditional access to the U.S. defense budget and lawmakers’ preferential treatment, drives down the cost of new technologies for all competitors, making it impossible for any other company to match its innovations without massive government subsidies.

The influence of Lockheed Martin over U.S. defense policy has become so extensive that the company has been granted self-assumed permission to conduct foreign policy without oversight by Congress (Vera, & Rodriguez-Lopez, 2004). By receiving exclusive sole-source contracts from the federal government that ensure a monopoly on U.S. defense spending, Lockheed Martin is immune from market forces and enjoys a protected monopoly over the U.S. defense industry as a result of its close relationship with the U.S. government.

In order to maintain its self-assumed right to conduct foreign policy without congressional oversight, Lockheed Martin used its influence in Congress to weaken federal regulations for facilitating the development and use of the commercial oil and gas industry, which increases energy prices for those who have to purchase energy from these sources. Although oil prices rose by approximately 40 percent over the last decade because of record-high international oil prices, less than 5 percent of this increase occurred in response to increasing demand, because these costs are simply passed on by most consumers through higher energy costs (Vera, & Rodriguez-Lopez, 2004).

Organizational Size and Structure

The organizational size of Lockheed Martin is not large, but rather medium-sized. Lockheed Martin’s size is between what the U.S. Department of Defense (DOD) defines as small and large organizations. Lockheed Martin’s organizational structure consists of a three-tiered command and control system with a decentralized management system on the top tier and an integrated operations center at the bottom tier that coordinates all activities across all tiers

Lockheed Martin has been in business since 1912, providing its services to some of the world’s largest corporations including Booz Allen Hamilton, General Dynamics, Northrop Grumman, Boeing Company and United Technologies Corporation. Its size has continued to grow, most recently surpassing 100,000 employees (Vera, & Rodriguez-Lopez, 2004).

Lockheed Martin’s Organizational Structure

Based on the description provided by Lockheed Martin on its website and information provided by other sources, Lockheed Martin’s organizational structure consists of a three-tiered command and control system with a decentralized management system on the top tier and an integrated operations center at the bottom tier that coordinates all activities across all tiers. The three tiers are (1) “Corporate Executives”, (2) “Center Senior Leaders”, and (3) “Operational Leaders”.

Corporate Executives are in charge of the upper management and have six executive roles assigned to them. They report to the senior vice president for the center that is predominant in their territory. Center Senior Leaders report directly to the senior vice presidents and oversee operations at the center. Operational Leaders are present in all three centers and report directly to Center Senior Leaders.

The eight different executive roles of a Corporate Executive include: (1) Continental Security, (2) Air Operations, (3) Global Security, (4) Field Services, (5) Finance & Accounting, (6) Information Technology Services, (7) Planning & Analysis, and (8) Program Management. These executives report to the senior vice president of the center that is predominant in their territory and oversee operations and guides strategic decisions for each center.

Senior Vice President, Lockheed Martin Aeronautics Inc. Mr. Ash has overall responsibility for Lockheed Martin Aeronautics’ business development, product management, logistics, engineering, customer support, training and sustainment activities for all United States Air Force (USAF) and U.S.

Lockheed Martin Corporation is organized into four business sections: Aeronautics; Information Systems and Global Services; Space Systems; and Electronic Systems. The Aeronautics business is the largest and includes four major product lines: F-16 Fighting Falcon, C-130 Hercules, Sikorsky Aircraft, and Advanced Tactical Fighter (Hughes, 2015). Sitting on the corporation’s board of directors are 56 directors, who include heads of Lockheed Martin’s international subsidiaries in Canada, France, Italy and other countries. Lockheed Martin has over 30,000 employees who work on over 200 projects in 25 countries.

The Income Statement

Lockheed Martin Corporation is publicly traded on Nasdaq (symbol: LMT). The company’s annual revenues were $23.9 billion in 2001 and included sales to the U.S. Government of $12 billion, or 50 percent of the corporation’s total sales, according to company financial reports. The corporation’s net income in 2000 was $1 billion on revenues exceeding $29 billion. The corporation currently holds over $30 billion in assets and maintains a debt level that does not exceed 15% of total assets (Weber, & Chathoth, 2009).

The company’s Information Systems and Global Services segment provides data networks, systems integration and telecommunications. The corporation’s Space Systems segment manufactures and supports satellites, launch vehicles, worldwide positioning systems and space systems components for the government and commercial market. Aerospace products made in the Aeronautics business include engines, wings, fuselage sections and other parts used on airlines, military aircraft and air traffic control vehicles.

The Corporation’s Space Systems and Electronic Systems sections make systems for military, commercial and government customers worldwide. The corporation’s Electronic Systems section works with defense contractors to develop and produce electro-optical and infrared sensors for missile guidance signals, digital video data links for command and control, ultra-high-resolution video cameras for surveillance radars, avionics technology used in aircraft cockpits and communications systems that link ground commanders to their forces in the field.

Lockheed Martin Corporation has a core staff of approximately 114,000 people globally. It operates 90 bases worldwide in 39 US states and 16 foreign countries with an annual revenue of $46 billion.

Lockheed Martin Corporation’s Critical Resources

Lockheed Martin Corporation’s critical resources consists of a multitude of items. Some of the many critical resources in Lockheed Martin Corporation’s arsenal are:

-Lockheed Martin Missile and Fire Control Systems and Sensors,

-Various weapons systems including Air Force and Navy munitions,

-Various Naval ships such as the Littoral Combat Ship and LCS Mine Countermeasures Mission Package,

-Information based services like data analysis, software design and support solutions.

Other critical resources such as skilled and educated personnel, a well-defined mission and infrastructure are also important factors that keep Lockheed Martin Corporation’s critical resources working in harmony to protect the nation’s security. Lockheed Martin Corporation is a world class organization that keeps critical resources in high gear.

Lockheed Martin Corporation is one of the many companies that specialize in acquiring knowledge from varied sources and applying it to a wide range of fields such as science, technology and defense (Kessler, 2002). The company has been known for their work with space technology for decades. They are currently working on new technologies that will revolutionize how satellite systems are operated. Lockheed Martin Corporation has been partnering with other companies to solve problems such as the explosion of the space shuttle. Technological breakthroughs have allowed for a new generation of satellites to be put into orbit. The new generation of satellites can be used for different purposes and put into orbit faster than ever before. This achievement is also a big step in helping Lockheed Martin Corporation continue to make advancements in research and development.

Lockheed Martin Corporation’s current goals are no longer just about their new technology but about their “new” outlook on space exploration. The company is working hard on applying satellite technology to long-range missile detection systems such as those that are sent out from the National Missile Defense System.

The presence of these critical resources in the hands of a large organization like Lockheed Martin Corporation is an advantage for the country. The company’s various entities not only provide protection for the United States with their various systems and products, but they also help protect our allies by providing them with military assistance. Other countries are making use of Lockheed Martin’s systems as well.

In order to maintain these critical resources and expand them, Lockheed Martin Corporation has relied on government contracts and relationships in foreign countries. Some of their recent contracts have been vital to the operational success of many government projects pertaining to space technology and defense technologies (Petrescu & Petrescu, 2013). The nation’s security relies on these companies like Lockheed Martin achieving successful outcomes from their projects.

Leadership, Governance, And Management

Lockheed Martin Corporation’s leadership encompasses a broad range of functions such as finance, human resources, marketing, and development. Governance and management is managed externally by the company’s executive leadership team comprising of a chairman, president, two vice presidents and one chief operating officer. They then oversee the day-to-day operations within the company which are managed by a board of directors who are elected by an internal proxy in each business unit.

Lockheed Martin Corporation also has many subsidiaries that share similar governance styles with Lockheed Martin Corporation as well as their own unique ones. The governance of these subsidiaries shares common themes with those within Lockheed Martin Corporation or have differences that warrant their own unique style being applied to them depending on any specific circumstances for each individual subsidiary.

Lockheed Martin Corporation’s governance is not limited to just their internal management process. The company also plays an active role in their efforts to provide care and support for the communities in which they operate, as well as contributing to world causes that are important to them, such as fostering science and technology since the beginning of their history, and pursuing quality business practices such as being a responsible employer and leader in the community, both inside and outside of the company (Petrescu & Petrescu, 2013).

The Chairman of the Board, who is elected by the board of directors, is the main leader for Lockheed Martin Corporation (Petrescu et al., 2017). The position is generally held by a current or former executive of one of the company’s operating units. The chairman and all other officers report directly to their executive management team who report directly to the board of directors. The Executive Vice Presidents are also elected by the Board of Directors and answer directly to the Chief Operating Officer (COO) who in turn reports directly to the chairman and acts as his or her deputy in his absence. The chairman for Lockheed Martin Corporation is Christopher E. Kubasik, CEO and president since 2017 (Petrescu & Petrescu, 2013).

Lockheed Martin is headed by a board of directors. The board consists of twelve members, nine of whom are elected by the company’s shareholders and three elected by the company’s employees. The Chairman of the Board, who is also a member of the board, is elected by the board of directors.

William H. Swanson was Lockheed Martin Corporation’s first chairman and oversaw its initial public offering on March 15, 1961 and through 11 consecutive quarterly dividend increases before his voluntary retirement in 1982 at age 65. Swanson was appointed to President Carter’s Export Council in 1978. In 1994, he was awarded the National Medal of Technology “for leadership in introducing advanced technology to U.S.-based defense systems (Weber, & Chathoth, 2009). He led Lockheed Martin during its transformation from a defense contractor to one of the world’s leading commercial aerospace companies.”

Although he is best known for his role as Chairman of the Board, E. Butler MacCallum is responsible for initiating and managing the first phase of Lockheed Martin’s corporate development. The second phase, culminating with the formation of Lockheed Corporation, was initiated by John J. Marlin and Robert H. Hall in 1945-46. In 1961, MacCallum oversaw O’Gara and Swanson’s initial public offering on March 15, 1961 which eventually led to the formation of Lockheed Martin Corporation on March 16, 1964.

Strengths and Weaknesses

The major strengths of Lockheed Martin Corporation are its diversified base of customers and products. Lockheed Martin Corporation has succeeded in different industries such as aerospace, information systems, security technologies and related services. This is mainly due to the wide range of products that the company produces for both commercial and government use. The main weakness of Lockheed Martin Corp is its exposure to a variety of economic risk factors. There also exist risks associated with: cross-selling in international markets; competition from other technological companies; changing global economic conditions; political risk on countries that they do business with; product liability claims filed against them by customers and suppliers, etc.

Another strength is that it provides customers with integrated and multi-layered missile and air defense. Lockheed Martin Corporation has experience in testing and producing modern military systems by man and machine (Ma, 2002). Its diversified portfolio provides it with enough capabilities to perform in a var