Lockheed Martin

Introduction

On the 4th February 2008 George W. Bush sent to congress his defence budget for fiscal year 2009 – a figure in the region of $650 billion (Whitehouse, 2009). This phenomenal figure is obviously an alluring source of business, including the worlds engineering heavyweights.

Boeing, BAE systems, Northrop Grumman and General Dynamics are the top defence companies of the world (Defense News, 2008); with Lockheed Martin (LMT) claiming the top spot for many years now, with a market value of $40.57 billion (as of 28 March 2008) (Fortune 500,2008).

Corporate Structure

LMT has over 50 office complexes over the US, with the HQ in Bethesda, Maryland; presumably due to its close proximity to Washington DC and the Pentagon (Lockheed Martin, 2009).

LMT’s chairman, president and CEO Robert Stevens, commands a salary of $15M, along with Jim McNerney of Boeing. The CEO’s of the other aforementioned companies receive more “modest” salaries, ranging from $1.5M - $5.8M (Yahoo Finance, 2009). This gives us some indication of just how much power these people have to be able to demand pay of this magnitude.

At the 1st tier of the company is the board of directors – responsible for the major decisions within the company. Below this is the 2nd tier of upper management, who are responsible for the various organisations within LMT (Lockheed Martin, 2009). These organisations are under LMT’s umbrella; but operate separately and allow the company to access different areas on the industry.

If I refer to the engineers within, we can see that out of the four engineering disciplines, aerospace engineers get paid the most (Simply Hired, 2009); I would say this is due to LMT being predominantly an aeronautical company. To get some idea of the salary ratio (PayScale, 2009) of the different positions in the company I have added some to the chart; the obvious position that sticks out is the ‘Alliance Manager’ underlining the importance of business strategy to LMT – key areas I will highlight later.

The ‘Average’ is taken from the average pay of these positions in the aforementioned companies; showing the trend in value put on these professions within the defence industry.

Military Projects

For a company approaching a century of operation, you have to consider its history. For me the most significant change to their business model was in the 1930’s when they decided to work on military projects as opposed to commercial aircraft.

WWII and the Cold War meant the US DoD required highly specialised aircraft that could give them the upper hand over the enemy. With other businesses falling short Lockheed came up with “unorthodox” designs to meet the high standards required.

LMT separate themselves from competitors by developing highly specialised weapon systems, which are pretty much un-rivalled in the industry. I shall compare them to Boeing, who are in actual fact larger than LMT but only 48% of their revenue is from defence. Boeing are big players in the commercial airline business and as a result, design systems not suitable for the high end of the Military

Expanding

Established as a prime contractor for the US DoD (Caat.org, 2003) (Nasa HQ, 2006), LMT could expand to other ventures. Offices in UK meant they could cater for defence organisations within Europe.

Another change to the business model would see them selling “solutions” (Lockheed Martin Corporation, 2009) rather than just bidding for contracts. This way they could get business rather than just waiting for it to come along; as is the case with many contract oriented businesses.
A notable move for Lockheed was the merge with Martin Marietta in 1995, which seems the trend with defence companies because it boosts their efficiency within the industry, keeping them competitive (Bnet, 1994).

There is an element of a monopoly to LMT, I would compare it to Microsoft; they have essentially become the “go-to guys” of their field. Just like Microsoft buy out competition, LMT do also (ABC Money, 2007).

Whole Life Support

Another key tool in LMT arsenal is the idea of “whole-life-support”, essentially selling not only a product, but the right to maintain and upgrade it throughout its product lifecycle, supplying them with a steady income.

Pentagon

Interestingly, LMT has ties to the Pentagon. Viewed by some as a conflict of interest, there seems to be somewhat of a ‘revolving door’ policy (Source Watch, 2008) between the Pentagon and LMTs upper-crust. Decisions made at the highest of levels of the government could be considered to be in the interest of this mega defence company.

Some food for thought; the terrorist attacks on September 11th 2001 and consequently the decisions which have led to several wars since, has seen LMT’s revenue increase by 60% (Wikinvest, 2009).

What’s next?

LMT has established itself as the biggest defence contractor in the world. They grew thanks to a succession of wars and it looks like the war on terror will help them expand further. It seems for this aeronautical company, the sky really is the limit!

References

ABC Money. (2007). Lockheed completes buyout of IT firm. Available: http://www.abcmoney.co.uk/news/01200716487.htm. Last accessed 05 April 2009.

Boeing. (2009). Major Production Facilities. Available: http://www.boeing.com/commercial/facilities/rentonsite.html. Last accessed 01 April 2009.

BMP. (2006). Lockheed Martin Naval Electronics & Surveillance Systems. Available: http://www.bmpcoe.org/bestpractices/internal/lness/summary.html. Last accessed 02 April 2009.

Bnet. (1994). Lockheed-Martin merger accelerates consolidation trend. Available: http://findarticles.com/p/articles/mi_qa3653/is_199409/ai_n8722392/. Last accessed 05 April 2009.

Caat.org. (2003). Lockheed Martin [US]. Available: http://www.caat.org.uk/publications/armsfairs/dsei-2003-report/lockheed.php. Last accessed 03 April 2009.

Defense News. (2008). Top 100. Available: http://www.defensenews.com/static/features/top100/charts/top100_08.php?c=FEA&s=T1C. Last accessed 1 April 2009.

Fortune 500. (2008). 57. Lockheed Martin. Available: http://money.cnn.com/magazines/fortune/fortune500/2008/snapshots/263.html. Last accessed 05 April 2009.

Lockheed Martin. (2009). About Us. Available: http://www.lockheedmartin.com/aboutus/index.html. Last accessed 05 April 2009.

Lockheed Martin. (2009). Organization. Available: http://www.lockheedmartin.com/aboutus/organization.html. Last accessed 05 April 2009.

Lockheed Martin Corporation. (2009). Enterprise IT Solutions. Available: http://www.lockheedmartin.com/products/enterprise-it-solutions/index.html. Last accessed 01 April 2009.

Nasa HQ. (2006). NASA Selects Lockheed Martin To Be Orion Crew Exploration Vehicle Prime Contractor. Available: http://www.spaceref.com/news/viewpr.html?pid=20720. Last accessed 04 April 2009.

PayScale. (2009). Salary Survey Report. Available: http://www.payscale.com/research/US/Employer=Lockheed_Martin_Corp/Salary. Last accessed 05 April 2009.

Simply Hired. (2009). Lockheed Martin Salaries. Available: http://www.simplyhired.com/a/salary/search/q-Lockheed+Martin. Last accessed 05 April 2009.

Source Watch. (2008). Government-industry revolving door. Available: http://www.sourcewatch.org/index.php?title=Government-industry_revolving_door. Last accessed 05 April 2009.

Whitehouse.org. (2009). Department of Defense. Available: http://www.whitehouse.gov/omb/budget/fy2009/defense.html. Last accessed 01 April 2009.

Wikinvest. (2009). Lockheed Martin (LMT). Available: http://www.wikinvest.com/stock/Lockheed_Martin_(LMT). Last accessed 05 April 2009.

Yahoo. (2009). Lockheed Martin Corporation. Available: http://finance.yahoo.com/q/pr?s=LMT. Last accessed 05 April 2009.