Threat not addressed
Weakness
Opportunity not taken
V. Strategy Formulation (Chapters 4-9)
Strategic alternatives
Alternative evaluation
Alternative choice
VI. Strategic Alternative Implementation (Chapters 10 - 13)
Action items
Action plan
Exhibits Presentation Slides
Introduction
Strategic Profile & Case Analysis
Brandi Barnes
Upon analyzing of Lockheed Martin’s historical strategic direction it is important to take notice of a few key facts. These facts or assumptions can easily lead to the series of analyses and scenarios depicted.
The assumption for Lockheed Martin’s differentiation strategy and primary product choice comes from events during WWI when the U.S. government began focusing on acquiring military aircraft, which boosted industrial growth. Preceding the war, the U.S. government cancelled over 90 percent of its defense contracts resulting in a reduction of entrepreneurial venture opportunities and reducing the number of major firms. This reduction in competitors became an opportunity for the firm to grow and become a leader in the industry. Even as an industry leader it was threatened by the lack of demand for its products and it is our assumption that this is the primary reason for the related linked corporate level strategy.
With these facts and assumptions stated, it is Group One’s consulting goal in this analysis to provide a current S.W.O.T. analysis followed by a strategy proper formulation and implementation based on our findings.
2. Situational Analysis
General Environment analysis
Technological Trends
Computers – Computers are probably the biggest technological innovation from the time Lockheed was founded (1912) until the present. It affects everything in aircraft now, from engines, to communications, to controls and everything in between. It also affects the company itself. Allowing for more communication in the form of Email’s in the company, databases that allowed information to be organized and displayed easier, programs that could help with designing, etc.
Communications – This applies to the communication within a company, as well as in the products they were making. Planes could now, with better clarity, talk to other planes, talk to ground crews, even talk to the passengers (in passenger planes). In the company as a whole, advent of cellphones and email later on would improve on communication which was previously done by written letters, landline phones and telegrams.
Engines – Engines at the beginning of the company’s inception were prop driven. That changed when the jet engine was created and implemented to be both faster and more reliable than prop engines. It brought air combat from the relatively slow prop engine combat dogfighting to high speed, split-second jet fighting that we think of today. Many of Lockheed’s iconic planes would not be possible without the jet engine.
Materials (both compositions and paints) – Material advancements made a large difference. The earliest craft were wood frames with paper, leather and other lighter materials stretched across the frame. These were very flimsy and not very useful for combat. By the time Lockheed came into being, Metal was a more common material, particularly for combat aircraft. Though the world wars, this was the standard, but in the cold war and beyond, it was found that composite materials could be used that would be lighter and stronger. The lighter materials would allow better fuel efficiency, and the stronger ones would better withstand incoming fire. An important point is the invention of the paint that is used on, in particular, the SR-71. The paint, in conjunction with the angles of the plane itself, scrambles radar signals, making the plane “invisible” to radar detection.
Demographic Segment:
Lockheed and The Martin Company merged in 1995 to form Lockheed Martin. After acquiring further companies, Lockheed Martin became one of the leading companies in the defense sector for the United States. Lockheed Martin has a very small commercial presence. There are no specific demographic effects on Lockheed Martin’s business.
Economic Segment:
The U.S. Government accounts for 82% of Lockheed’s sales, which makes them highly dependent on the government. The government has the ability to implement defense budget cuts, which would decrease Lockheed’s sales as well as decrease the number of contracts Lockheed would receive. Recently Lockheed expanded into renewable energy and healthcare business segments to diversify its business as well as lessen the risk that the company will only perform well in times of global turmoil.
Lockheed Martin has 17% of their net sales coming from international transactions with plans to increase that percentage. International markets can be erratic because of their volatility. Increasing their international sales will lessen the reliance on the U.S. Government for contracts, but increase their risk with foreign markets. The global recession has led to many foreign countries leadership proposing for budget cuts; defense budget being the first to decrease.
Political Legal Segment:
Lockheed faces many risks within regulation and budget constraints. Lobbying efforts play a huge role in Lockheed’s success in order to maintain an optimal defense budget. It is predicted that the U.S. Government plans to cut their defense budget by as much as 4% between 2012-2016. The Budget Control Act of 2011 set forth an ambiguous future on the United State’s defense budget. The U.S government has also started to withdraw from international conflicts, which diminishes the need for defense spending. Lockheed Martin also faces political risk abroad when accepting international contracts. Constraints put in place by the U.S Government make it hard for Lockheed to compete internationally. They must deal with trade embargos and restrictions from selling and accepting contracts from certain countries.
The International Traffic in Arms Regulations allows the President to have the authority to control and regulate the export and import of defense articles and defense services. Contracts can become costly and have an excessive approval process because of the ITAR’s. This may prevent foreign countries from wanting to accept bids from companies, like Lockheed Martin, in the United States. Although the ITAR’s could lead to a setback in the increase for international sales, regulations are becoming more lenient with the U.S. main allies.
Global Trends
War – World War 2 was a major factor involved in the catapulting of Lockheed into its current position. Ranking 10th in value according to wartime contribution, Lockheed’s planes were used extensively in the war. The P-38J was the only plane produced during the war, Lockheed’s answer when asked for an interceptor model to combat Japanese and German air forces. In both wartime and in peace, the government and Lockheed have worked to create better, more reliable, and safer alternatives to conventional warfare.
Trade – Even before the war, trade was occurring globally, but in terms of reducing tariffs globally, this picked up particularly in the late 1900’s and beyond. NAFTA and other regional trade agreements helped, and the WTO assists in regulating the sometimes restricted items that Lockheed deals in. There are designated jobs in Lockheed who are in charge of ensuring that trade agreements are abided by, and that international and local laws are followed in regards to trade abroad and at home. There are also issues that come with world trade. The United Launch Alliance, a joint venture between Lockheed and Boeing, was halted until it included language to ensure it did not stifle competition in the industry of heavy launch services and spacecraft.
Physical environment trends
Community outreach and corporate social responsibility – Lockheed encourages community outreach, including STEM education, military and veteran affairs. Lockheed’s approach to STEM outreach includes support for programs, events and campaigns that focus on achievement and engagement.
Waste and energy conservation – Lockheed does its best to ensure it uses only the power it needs, and creates as little waste and pollution as possible, ensuring recycling and other environmentally friendly practices are used. This extends to their suppliers as well, increasing the impact of these initiatives. Several of Lockheed’s locations use, at least partially, green energy alternatives, reducing their environmental impact as well as reducing their overhead costs at their plants. http://www.lockheedmartin.com/us/who-we-are/sustainability/core-issues/resource-efficiency.html. (placeholder in case stats are needed to fill things out. This link should be deleted for the final version.)
Industry Analysis
Threat of new entrants: Low
Barrier to entry is high in the industry allows for very few new firms to enter the field. A major factor is the cost of executing a defense contract is substantially higher than that of a similar commercial contract. Government contracts have numerous agencies to satisfy, all whom monitor the pricing, quality, and performance of products, in addition to adherence to the various standards regarding implementations (262). The Economics of Scale (the incremental efficiency improvements through experience as a firm grows larger) is also harder to obtain. Although investment in property, plant, and equipment required for the industry is low, because of government policies several deterrents for star-ups existed. Chief among these deterrents are specialized human resources, continuous facility improvements and cost reductions, intense national and international competition, and ongoing technology obsolescence (262).
Bargaining Power of Suppliers: Low
An indication of the bargaining power of the suppliers is the strength of the relationship between the firm and its suppliers. A firm who is not a significant customer to the supplier group puts more power with the suppliers, while a firm who is a significant customer to the supplier group puts more power with the firm. Lockheed Martin falls in the second category as having more bargaining power than its suppliers. An example of this lower bargaining power of the supplier is the close work that Lockheed Martin does with its suppliers to anticipate raw materials prices and plan accordingly (263).
Bargaining Power of Buyers: High
A major factor comes from the fact that the customers (buyer groups) derive their power as the sales of the product being purchased account for a significant portion of the seller’s annual revenue. With only 2 percent of the information Systems and Global Solutions division revenue originating from commercial customers in the United States, and 5 percent from international customers. It is obvious that the purchases by the U.S. government account for the majority of the segment’s revenue (262).
Threat of Substitute Products: High
Product substitutes are a strong threat to a firm if the substitute product’s price is lower or its quality and performance capabilities are equal or greater than those of the competing product. This aspect becomes very apparent in the way the government makes its purchase decisions. The government rewards contracts for the whole system instead of individual components and sub-systems using a competitive and transparent “request for proposal” bidding process (262). This “request for proposal process” where the firms have to create a product that meets the customer specifications creates a situation where the different firms create a product that is very similar in quality and specification to each other.
Rivalry among Competing Firms: High
The high rivalry is based on two factors. Industries with only a few firms of equivalent size and power also tend to have strong rivalries. The large and often similar-size resources bases of these firms permit vigorous actions and responses. As the case highlights, Lockheed Martin was the industry leader for defense aircraft followed by Boeing and Northrop Grumman Corp (261).
Competitor Analysis - Nick/Yacine
The defense and aeronautics industry is extremely competitive by nature; with a small amount of firms mainly competing for a limited amount of contracts. The case identifies LMT’s biggest direct competitors as Boeing (BA), Northrop Grumman (NOC), and General Dynamics (GD). Due to these companies competing in the same markets, oftentimes the same government contracts, and have similar dimensions they form a distinct strategic group. Competition is intense with the group which each firm competing directly by creating strategies to find a competitive advantage. These firms all recognize the volatility of aeronautics and the dependence on government contracts. Therefore, Competitors are forced to innovate and thus attract clientele with their amenities. International demand for defense and military products is increasing. In the US, foreign military sales should increase from $21.36 billion in 2010 to a record $46.6 in 2015, 118.2% growth (Zack Equity Research 2010).. Regions such as the Middle East, Eastern Europe, and Asia are a very attractive market. In December 2011, Japan joins Israel as a foreign military sales customer for the United States 11 nation program (Lockheed Martin, 2011).
COMPETITIONS OBJECTIVES, STRATEGY, BELIEFS/ASSUMPTION OF INDUSTRY, STRENGTHS AND WEAKNESSES
The Boeing Company - Nick
Boeing prides itself on detailed customer knowledge and focus, technical and functional excellence, large-scale systems integration, lifecycle solutions, and lean global enterprise. The firm also places an emphasis on ethical business, innovation, and global presence, which it intends to carry into the future. Boeing has taken risks in its past, which have paid off. In the 1950s, Boeing bet 25% of its net worth on developing the 707. However, the same outcome was not achieve with its creation of the 787 Dreamliner. The company has maintained its strength and with a reported backlog worth $296 billion at the end of 2011, Boeing has established a long term platform for growth.
According to Boeing’s 2011 Annual report they identify their strategy as “centered on successful execution in healthy core businesses – Commercial Airplanes and Boeing Defense, Space & Security (BDS)” and supplemented by Boeing Capital Corporation. They maintain leadership within commercial airlines by delivering products that have superior design, value and efficiency. Within BDS Boeing delivers solutions at a reduced cost to defense, intelligence, communications, security, and the space industries. Boeing also maintains a strategy of competing through mergers and acquisitions, with 11 mergers and acquisitions in 2011. They do this by identifying companies depending on their ability to integrate the business operations within their structure.
Overall Boeing has a global perspective when taking action against competitors. They operate in broad markets with a wide variation of products and services. With that knowledge Boeing’s competitive structure is focused on 3 priorities; extend, capture, strengthen. Specifically they compete globally by extending and growing their core business, capturing international business, and strengthening capabilities in high growth areas with target acquisitions and internal investments.
General Dynamics - Nick
General Dynamics operates in four distinct business groups that include aerospace, combat systems, marine systems, and information systems and technology. The company considers themselves a market leader in the aerospace and defense industry. They focus on delivering high-quality offerings and continuous innovation and improvement. GD’s strategy to create shareholder value “through disciplined program execution, organic growth, margin improvement, efficient cash flow conversion and prudent capital deployment (General Dynamics, 2011).”
In the mid 90’s GD began focusing on acquisitions within combat vehicles, shipyards, information technology, and investing into Gulfstream Aerospace Corporation. Much like other firms in the industry, most of GD’s business comes from the US government. In this realm the company competes with combat vehicles, marine systems, and IT. The Gulfstream is the focus of GD’s aerospace group and they have expanded their Savannah, Georgia facility to increase service capacity.
Aside from markets within the US, General Dynamics has been increasing their focus on international markets. Gulfstream has opened a support office in Hong Kong and a sales office in Beijing. Additional service facilities have been expanded in Spain and England as well. In 2008, General Dynamics acquired Jet Aviation and has been leveraging this strategic action to continue growth and diversification within aerospace by providing maintenance and repair services in over 20 worldwide locations.
Northrop Grumman Corporation
Northrop Grumman Corporation’s (NOC) goal is to be at the forefront of technology and innovation
Competition is fierce in the sector since government budget cuts have resulted in less territory. In January 2010, Northrop Grumman company officials announced NOC were moving their historical headquarters from Los Angeles to Washington DC. It was perceived as a prudent step for the government contractor. Pressure from competitors, especially from General Motors resulted to the termination of shipbuilding activities. NOC pursued a spin-off into Huntington Ingalls industry as the most efficient way to restructure and meet the shareholders best interests. According to Northrop 2011 annual report, the spin-off represented about one sixth of Northrop Grumman's 36 billion revenue in 2010.
Competitor Assumptions- Nick&Yacine
LMT, BA, NOC or GD have integrated innovation as a core part of their internal culture and their company mission. Collaboration is especially important in the AD&S sector due to the high cost and long lead times associated with major programs. For most companies, common interests to monetize existing products and services lead to a move in adjacent markets such as healthcare or environmental industry. As one of many examples, Lockheed Martin is using its expertise in engineering to provide support in the medical field (Innovation and Growth Journal, 2010). However tolerance for risk is low in the industry. Indeed the industry is highly regulated and new product are carefully tested and documented. Competition is fierce within the US and these companies continuously seek opportunities to expand internationally into new markets. The fluctuations of defense contracts has also led to a heightened need to break into new markets or industries.Competitors recognize the volatility of the market and recognize the need to continuously develop and sustain competitive advantages.
Internal Analysis
Sourced from the Lockheed Martin website: their mission, vision, and values statements are as follows:
Our Mission: We solve complex challenges, advance scientific discovery and deliver innovative solutions to help our customers keep people safe and provide them essential services.
Our Vision: Be the global leader in supporting our customers to strengthen global security, deliver citizen services and advance scientific discovery.
Our Values:
Do What's Right
Respect Others
Perform With Excellence
Lockheed Martin therefore strives to be the market leader among firms in the United States defense industry whose main customer is the Department of Defense. Lockheed’s market share of [2011 market share] is rivaled by Northrop Grumman Corporation, [2011 market share] billion market share, and Raytheon Corporation, [2011 market share] billion market share. Although the Boeing company leads the aerospace industry with a [2011 market share] market share, Lockheed serves the aerospace industry in a more focused way than Boeing, whose product market focus is split between commercial and military aircraft. Lockheed’s corporate-level diversification strategy is linked, not constrained, with transferring core competencies inf technological innovation being a means for mergers and acquisitions.
Tangible resources: Medium
Lockheed Martin’s most premier source of tangible resource is technology, because of their past history of exclusive developments for the DoD, and also of the exclusiveness of their current contracts. Advancement and investments are concurrently made across their four business functions; Aeronautics, space systems, electronic systems, and information systems and global solutions. LMT therefore relies on the latest releases of technologies to meet the needs of their future product markets. Although this firm’s technological resources are strong and may remain so, their financial resources are questionable at times because of heavy reliance on varying levels US Defence spending. Coupled with rising operating costs, LMT was asked by a high ranking military official to end production of a certain fighter jet.
Financial
Reliance on defense contracts from the US Department of Defense. Lockheed's cash flow is correlated to yearly budget cuts, budget expansions, and budget freezes by the US government.
Over 80% of LMT's revenue comes from the US government, therefore R & D is funded through the contracts and through subsidies
Organizational
LMT has experience with government contract fulfillment from WWII and throughout the Cold War. Their four business segments are divided and administered into: Aeronautics, space systems, electronic systems, and information systems and global solutions.
Technological
Lockheed's Martin F-35 Martin II is the most capable and expensive aircraft yet. It has the unique capability of hovering.
Physical
"Although investment in property, plant, and equipment required for this industry is low, because of government policies several deterrents for start-ups remain."
Intangible resources: Strong
Because of this quote, LMT therefore subscribes to the resource view of earning above average returns in their information systems and global solutions segment.
"The firm emphasizes innovation, human capital, and ethical practices as the foundation for serving customers’ needs."
If not for all of their product markets, LMT relies upon most heavily on their internally controlled resources of human resources and innovative resources for customer satisfaction. Their reputational resources might be seen as more of a marketable tool that is appreciated more so prior to product delivery. Also seen in Lockheed Martin’s mission statement is reverence of their internal innovative resources in “-advance scientific discovery and deliver innovative solutions”.
Human resources
Chief among these deterrents are specialized human resources, continuous facility improvements and cost reductions, intense national and international competition, and ongoing technology obsolescence. LMT's human resources must not only have the technical skills for their positions, but must also have not had certain experiences in their past to receive a government security clearance for employment.
Innovative
Research and development (R&D) is integral to this industry, with funding for R&D coming explicitly from the contracts being awarded and government subsidies. This funding was implemented to ensure that a company could become the sole contractor for a proprietary technology and thereby capitalize on innovation.
In anticipating the future demands of consumers, LMT has invested into research in the unmanned vehicles.
Reputational
Currently, LMT has the position of market leader in the defense sector. They have a history of fulfilling contracts dating back through the Cold War into WWII.
Its negative reputation from the 20th century is from its near death experience from bankruptcy and a scandal involved in contract bidding and negotiation ethics in the 1970s (as Lockheed Corporation).
Capabilities: Strong
LMT's chief capability is to fulfill defense contracts for the US department of defense in the segments of Aeronautics, space systems, electronic systems, and information systems and global solutions.
"However, fully 78 percent of Lockheed’s total sales are from military arms and 82 percent of total sales originate from within the United States. Simply put, Lockheed’s dependence on U.S. defense spending has the potential to threaten the firm’s longevity."
So, LMT's success depends heavily on their capability to serve their number on stakeholder; the US Government's Department of Defense.
Core competencies: Strong
LMT's core competencies rest in providing customers (the largest being the US Department of Defense) with advanced combat and non-combat military aircraft, vehicles and equipment for space entry and exit, Missiles and Fire Control and Mission Systems and Training, and information technology. Each of these core competencies relate directly to LMT's capabilities to fulfill defense contracts in their segments of aeronautics, space systems, electronic systems, and information systems and global solutions.
Following the merger of Lockheed Corporation and Martin Marietta, which analysts hailed as a "merger of equals", and through future acquisitions in the first decade of the 21st century, LMT has increased their capability through resource attainment to provide their customers with the most innovative products. "This so-called “merger of equals” was hailed by investors and others as a “rare instance of corporate synergy” as the two companies were competitors, yet with minimal areas of overlap in specialties and capabilities."
Prior to the "merger of equals", The Lockheed Company developed and released the Vega wooden monoplane, which was the first to make a nonstop flight across the USA in 1928. That success attracted the attention of the Detroit Aircraft Corporation, who acquired the company in 1929.
Secure our existing programs by performing with excellence. Additionally, we must continue to have candid dialogues with our customers and the highest degree of transparency on all our programs.
meaning: Serve customers with grace, openly accept customer feedback with clarity in their development programs
Extend the value of our platforms by shaping follow- on business and tailoring our existing capabilities for new applications. We should also continue to seek and implement innovative business models.
meaning: Encourage innovation.
Expand our position within targeted segments with market-based strategies. This also means more pursuits internationally, and greater synergies between Lockheed Martin products.
meaning: Internal equilibrium of cross-product product development and operations
Enable meaningful growth through adjacent market opportunities. We want to focus on markets that will move the needle for us.
meaning: Related (linked) diversification is okay.
Discovering core competencies
VRIO Framework
Valuable
Ethics (One recent CEO was forced to resign after an investigation into his life revealed he had an intimate relationship with a subordinate, a breach of their corporate ethical code)
Tangible resources (Focused on technological assets)
Rare
Culture
Contracts won to develop military aircraft
Intangible resources (Focused on innovative resources)
Inimitable
Exclusive research and development contracts
Transforming experience gained from completed projects into firm-wide education
Organizationally controlled
Culture
American owned and supported through WWII and the Cold War
Value chain analysis (Which parts of the business create value, and which don't?)
Innovation within the firm is very valuable
Therefore, any innovative developments should not be outsourced, but administrative functions definitely should be outsourced
Although Lockheed was successful in entering an alliance to develop F-22 military jets for the DoD, the project was canceled in 2008 by Secretary of Defense Robert Gates due to budget constraints. The capabilities developed by Lockheed could not stand up to the budgetary requirements of the US government (general environment, political/economic segment).
Competitive Advantage
A firm has a competitive advantage when it implements a strategy that competitors are unable to duplicate or find too costly to imitate. Lockheed therefore needs to develop a strategy that leverages their strong intangible resources through their core competencies.
Strategic Competitiveness
Firms only achieve strategic competitiveness through the strategic management process; which is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. As seen prior from the industry analysis, threat of new entrants is low and bargaining power of suppliers is low. This coupled with a high probability of substitute products and high rivalry within the industry, Lockheed can not afford to remain static. Currently, with financial evidence from the case, Lockheed derives a majority of their revenues from one product market, the DoD. Although one product market is the source of a massive amount of revenue, Lockheed is diversified, as seen through their four unique business units, some focusing more on services rather than product manufacturing.
Strategic leaders/Top Management Team
3. Identification of Environmental Opportunities and Threats and Firm Strengths and Weaknesses (SWOT Analysis)
Strengths
Lockheed has formed solid ties with the United States Government. In this line, the company’s business connections with the United States Government stems way back, all through the Cold War in addition to the Second World War. These are intense conflicts that created togetherness in the nation.
Lockheed enjoys steady financial performance even in the midst of peace. The Department of Defense does not withdraw its funding from the country when there is no conflict.
The corporation is a beneficiary of recent innovation and contracts that last from 5 to 10 years. These pave way for the possibility of future revenues. Notably, in 2005, the GPS-2RM was launched. It increased the power accessible to prevalent signals plus extra frequencies for the use of civilian and military GPS use.
Superior R&D, invention, and innovation help the firm to preserve its cutting edge in the marketplace. The mission statement of Lockheed stipulates its strength in that the company seeks to enhance scientific discovery and the delivery of innovative situations. For that reason, strategy formulation can be derived directly or indirectly from the mission statement.
Lockheed depends extremely on honesty, reliability, and teamwork, which are among the organization’s core values.
The company is prominent and established thus it is dependable as it has financial assets that upcoming companies lack to support their trade during critical times.
Weaknesses
The company highly relies on government contracts in order to attain revenue. The United States’ Government attributes to 82% of the sales revenue of Lockheed Martin.
It also has a low price strategy as it handles low price budgets. In turn, Lockheed suffers from low profitability levels.
Lockheed also is challenged by the potential increase of many global defense budgets due to contractual and political problems that arise from international connections in defense agreements. The corporation’s prime competitors Boeing, BAE Systems, Cassidian (Airbus Military), and the Dassault Group. Competition is extremely fierce and these rivals R&D advantages include technology advancement and the capacity to meet precise needs, which are the greatest determinants of contract procurement.
Employee reduction is another weakness as the firm faces loss of knowledge and capabilities. A profound example of this is the aging workforce in the company.
In terms of clientele, other than the government, the firm does not have other large customers.
Opportunities
Joint ventures and acquisitions are a fundamental platform for Lockheed to expand its horizons. For instance, the corporation has 50% stakes in joint ventures United Launch Alliance, LLC and United Space Alliance, LLC. As aforementioned, Boeing is Lockheed’s key competitor; however, the two companies jointly operate and own Hellfire Systems, LLC. This is a joint venture formed with an aim of manufacturing the AGM-114 Hellfire Missile.
Lockheed has the capacity to diversify into a variety of industries. The corporation has more opportunities owing to the fact that it has a broad range of clientele. It is noteworthy that the company provides products to diverse sectors, including healthcare, financial services, and healthcare (236).
Additionally, the firm has the capability to continue enlargement into the private industry. Through the expansion into this sector, Lockheed’s source of revenue shifts from the defense budget of the United States (263). Moreover, the firm has product markets with nations the United states has aligned itself through North American Treaty Organization (NATO) and product markets with non-NATO nations.
There are also increasing defense needs for nations as a result of the rising terrorist threats. Unstable conditions render the demand for defense high in nations such as Afghanistan and Iraq. In addition to that, the rival countries for example India and Pakistan invest a great deal of their budgets on defense equipment. Thus, Lockheed Martin can borrow a leaf and allocate a large part of its funds on acquiring defense material that will outweigh its competitors.
Threats
Changes in the United States Government budget and policy pose a threat to Lockheed’s operations. As indicated in the case analysis, the United States’ military expenditure is expected to decline as a percentage of the GDP to an average of 4% within the next five years (2012-2016). This is a decline from 4.6% during the years 2007-2011 (268-269). Furthermore, the country’s government decision to deduct its global commitments, for instance, the retraction from Iraq, which has the capacity to further diminish the demand for defense expenses (269).
Lockheed is threatened by a volatile international market. As highlighted in the case study, it is essential to observe that the global market segment presents more setbacks as compared to the domestic markets that Lockheed functions. This is due to the propensity for greater unsteadiness in foreign political and economic settings (269).
There are also controlling costs that hover around the operations of Lockheed. A remarkable illustration can be drawn from F-35 project. The rising costs of this initiative were approximated to amount to 1.51 trillion (270).
Competition from other key manufacturers such as Boeing affects the company’s functions. Globally, the competition is intense, not only in areas where Lockheed operates.
Government regulations are also prevalent in areas, such as security and technology, which are core business operations, performed By Lockheed Martin.
Global decisions made pertaining to trade barriers act as hindrances to the smooth running of the company.
Strikes by companies that are associated with Lockheed Martin can occur such as Boeing. These strikes negatively impact the image and reputation of Lockheed and this may lead to the loss of both current and potential clients.
4. Problem Statement
Brandi Barnes
In the case of Lockheed Martin, there are several issues that should be addressed to reach a proper solution. One of the main issues here is that the threat of decreased government contracts and cost overruns is not adequately addressed. Another problem that could be further looked into would be the internal weaknesses, such as their strong dependence on the government and changing technologies. The last problem that could be defined in this case would be the external opportunities that are not being taken advantage of, like diversifying the industry or expanding into private sectors.
5. Strategy Formulation (Chapters 4-9)
Resources for industry analysis, including industry at a glance, industry outlook, and product markets:
336414: Guided Missile and Space Vehicle Manufacturing: United States [This industry is their primary NAICS according to their company profile]
Industry analysis: http://bit.ly/21aCmiu
C2544-GL: Global Military Aircraft & Aerospace Manufacturing: Global
Industry analysis: http://bit.ly/1MQUf3E
Strategic alternatives
Cost Leadership/differentiation strategy
Global strategy
Synergistic alliances
Mergers and acquisitions
Alternative evaluation
Cost Leadership/differentiation
Pro: lower cost, better price point
Con: Lower profit margins
Global Strategy
Pro: ease of production, economies of scale
Con: government regulations to selling defense products in foreign markets
Synergistic alliances
Pro: product differentiation, complementary skills, decreased overall risk
Con: risk of partners not acting honestly/misrepresentation, loss of control, inadequate contracts
Mergers and Acquisitions
Pros: Increased market power, overcoming entry barriers to new product markets, increased speed to market, lower risk compared to internally developing new products, increased diversification, reshaped scope, learning new capabilities
Cons: Integration difficulties, poorly evaluated target, large debt, inability to create synergy, over diversification
Alternative choice
Mergers and Acquisitions are the better option as compared to the others. This is because they can facilitate Lockheed Martin’s pursuit to expand more rapidly. In this light, the company has financial soundness that can necessitate the acquisition of firms. By gaining more companies, Lockheed is able to obtain access to new technologies. The firm can also reduce the threat of substitutes and thus, Lockheed can achieve a competitive advantage through upgrading its own technology. Acquiring more enterprises and merging with companies diminishes Lockheed’s overdependence on the government and this can render the company more solid. In so doing, the firm can increase its market share and diversify into new products that can attract more clientele and high profits. By and large, Lockheed’s profitability levels can be greatly boosted and the image of the company can be enhanced as well.
6. Strategic Alternative Implementation (Chapters 10 - 13)
Action items-strategy, culture, resources, and plan
Action plan
In order for Lockheed Martin to implement the alternative choice for mergers and acquisitions, several factors need to be put into place. There are key steps in the integration of mergers and acquisitions as defined by The Intersect Group.
Step 1: Align strategy
Lockheed needs to understand its targets and synergies. The company should also confirm the leadership’s devotion to engage in mergers and acquisitions.
Step 2: identify Culture
The company needs to assess the diverse cultures of the organizations to merge with and or acquire. It needs to establish what to keep and what to give for both organizations.
Step 3: Commit Resources
Lockheed Martin’s leadership needs to create teams that can spearhead the integration initiatives. Here, the roles and responsibilities should be agreed upon and aligned to the strategy. Team performance should be measured in tandem team performance.
Initiative plan
The company should establish and prioritize the initiatives and set the standard for achieving synergies
Execution
The action plan should be implemented through defining the preferred end state. Metrics should be set and team progress monitored. Eventually, Lockheed can transition into merging and acquiring companies to strengthen its market power.
