Introduction $47.2 Billion of that 17.8 billion

Introduction

Lockheed Martin is a Business to Government(B2G) aerospace
and global defence company headquartered in Bethesda, Maryland. Currently it employs
approximately 97000 employees in the United States (US) and worldwide. Lockheed
Martin Operates in 4 core business segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, Space
Systems Lockheed Martin (LM) is most famous for being the largest military
defence contractor in the world. Its Largest Customer is the United States
Department of Defence (DOD) making its largest consumers the United States
Armed Forces. This Report will aim to analytically analyse why Lockheed Martin
is successful, for the purposes this report the focus would be on the
Lockheed’s Aeronautics business segment specifically it advanced military
aircraft projects.

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Market & Products

The US has the largest Military defence market in the
world with the US accounting for 37% of the world’s top 6 country’s defence
spending in the year 2016 Spending a total of… As stated earlier LM is the
largest global defence company with a $14 billion difference in revenue between
it and its nearest competitor Boeing, this is a key indicator of LM’s success . According to the
Lockheed’s 2016 financial report its 2016 sales amounted to $47.2 Billion of
that 17.8 billion was attributed to Aeronautics which accounts 37.7% of total
sales, the highest of the 4 core businesses . Lockheed Martin is tagged as the world’s foremost
leader in the design, manufacture and support of military aircraft . It offers a mix of
physical products as well as support systems, training and systems integration
service ensuring that they are one stop shop for all the customer military
aircraft related needs. This ensure that the Lockheed martin can profit from a
greater part of the value chain and not just 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-16 fighting falcon and the F-35 Lightning
II (Arguably its best seller
show numbers). The market that LM operates in is highly competitive porters 5 sources one
although it an oligopoly especially in the advanced military aircraft segment
where LM’s main competitors are Boeing. This market is governed by
contracts meaning that companies do not sell predeveloped/manufactured products
but instead they bid for and are awarded contracts to develop products based on
the militaries needs at the time. The industry operates on a multistage
contract, first the military decides it wants a new aircraft to serve 1 or
sometimes all three of its branches, it then proposes its requirements to
several defence companies. The companies then respond with their design concepts
at this stage only a few with the best designs are selected to move forwards.
Then the governments funds the development of prototypes for their designs
which then compete against each other to select the ultimate winner of the
contract. Contracts are awarded this way to stop companies from bankrupting
themselves trying to win a contract 

 

SWOT

 

 

Segmentation, Targeting & Positioning

It is easy to assume that all
defence companies are weapons manufacturers however this is not the case,
weapons manufacturing is only a segment of the defence industry albeit the
largest, but still one of the many. According to Lockheed martin 2016 investors
document it operates in 4 business segments, Aeronautics, Missiles and Fire
Control (MFC), Rotary & Missions Systems (RMS) and Space Systems. It’s
Aeronautics business segment caters 100% to the military defence industry. Due to the nature of the
industry segments are established from military needs as deemed by its own
analyst e.g. fighter mafia (an analyst group that advocated the creation of dog
fighter type planes), and not by the companies. The advanced military aircraft segment Is the most
important part of Lockheed’s portfolio not just because it makes the most money
but also because it’s important to their number one customer who pride
themselves in having the best air force in world. This means that this is the
segment they are most willing to spend the most money on, this is evidenced by
the record setting $200Billion contract recently given to Lockheed Martin.

Due to Lockheed Martins size the are able to produce
multiple product servicing the military aircraft segments e.g. fighter jets
(F-22 raptors), helicopter (Black Hawk) and cargo planes (C-130J
Super Hercules).  With this variety of product, they can target
different military branches. Since sales to the governments both foreign
and domestic account for 100 % of their aeronautic sales it would be sufficient
to consider government officials as their target audience. They however do not
target the whole government because it is extremely costly and inefficient,
their strategy is to only target those involved in the decision-making process
or those who influence it i.e. the end users. Their main target includes top
level generals senators congressmen and women and special subcommittees set up
to manage military purchases that go through the pentagon. They target this
audience via various lobbying efforts and something called political engineering.

Political engineering essentially taking advantage of
the military industrial complex to maximise a projects economic impact and
reduce its likely hood to be cancelled. For this reason, many have deemed
defence companies to large to fail. A prime example of this can be seen in the
recent joint strike fighter project. The F35 project is estimated to create
over 146,000 direct and indirect jobs across 46 states, parts are manufactured
all over the country maximizing the economic impact and ensuring bipartisan
support in congress. Lockheed martin hired subcontractors in several other
countries and has received orders from 11 allied countries including the United
Kingdom, ensuring that anything done to hurt or cancel the project could affect
international relationships. This strategy has made the project nearly
impossible to cancel and ensured the future of the project. This shows that
Lockheed has fully understood the governments needs and therefore tailored its
product accordingly. Due to the nature of contracts that Lockheed martin goes
after it is positioning it’s the best place to go for military aircraft. It is
also taken up a position as a provider of systems integration and training
services for the US military.

Lockheed Martin prides itself as an innovative problem
solver, its mission is solving complex challenges, advancing scientific
discovery and delivering innovative solutions all to help its customers keep
people safe. Its mission simply put is to become a global leader in supporting
their customers’ missions, advancing scientific discovery and strengthening
discovery. Analysing these two statements it can be deduced that Lockheed
Martin is a customer focused company tailoring the products they create
specifically to their customer needs. LM has on its employee sheet a host of
military advisers that advise on the current needs of the military. In addition
to this 1 in 5 employees are former military personnel this gives them an edge
over competitors as it puts them in a better position to understand what the military
needs.

Work Force

As of December 31, 2016, approximately 21% of
employees are covered by various collective bargaining agreements . On any given year a
few of these collective bargaining agreements may expire, historically LM have
been successful in negotiating renewals without any delays or disruptions to operations . This demonstrates an
ability to properly manage work force, something that helps them remain
successful. Of their 97000 employees 49000 (50.5%) of them are engineer
scientist and information technology professionals showing just how big technological
advancement is to the company. The company’s operation, unfortunately, falls
under International Traffic in Arms Regulations (ITAR), this regulation only
allows them to hire US citizens due to the nature of the technology they
handle. This limits the pool of talent they can hire from, where other
commercial companies have access to the Global engineering talent pool Lockheed
are limited to America and its territories. Its is possible to get exceptions
for ITAR, but, the process is extremely difficult so therefore is usually
reserved for experts with sort after knowledge of important complex fields.
Even then there are still restrictions on what they may or may not have access
to. This also limits Lockheed’s ability to collaborate with its own
international offices. Another measure put up by the US, is the security
clearance, it requires that personnel working on project or with technologies
deemed as classified must first obtain a security clearance. This makes it more
difficult for Lockheed to hire consultants to help on specifically challenging
projects even if they are American. Lockheed martin is also in charge of making
sure that all its suppliers abide by the rules and obtain security clearances
where and when necessary.

As part of Lockheed’s commitment to small businesses
they have committed $4.3Billion to over 9,900 small businesses. They have over
16000 employees in every state across the US and over 1500 suppliers across the
globe generating over 19.5 and 9.6 billion respectively in revenue for those
suppliers. For a lot of their suppliers Lockheed Martin is their biggest if not
one of their biggest clients and therefore most of the power lies with
Lockheed. On the other side the US Government is responsible for 71% of
Lockheed revenue so the government holds the power in this relationship. This
essentially means that the government sets the terms of the contract which will
ultimately determine how Lockheed sets the terms of its contract with its
suppliers.

Lockheed martin is known for its technologically
advanced and high-performance military aircrafts. In 2001 LM won a $200Billion contract
over their main competitor Boeing to develop a Joint strike fighter (F35-Lightning
II) to replace several already existing military aircrafts. The reason LM won
this contract was due to the fact that their prototype far outperformed its competitor . Lockheed Martin’s
F35-Lightning II has been deemed to be the most technologically advanced
military aircraft in the world which is a big selling point for the product and
a reason for its enormous success.

Their main competition in the military aircraft
segments are terms of size and capability are Boeing. In general Lockheed is
considered to be better than Boeing considering that they are the number one
defence contractor however Boeing is said to have better expertise in the field
of unmanned military aircrafts (drones) which are becoming more popular can be
seen as a direct competitor to manned military aircrafts. Recently a substitute
for military warfare that threatens to completely replace or at least reduce
its importance is cyber warfare. Via cyber warfare economies can be put into
disarray, cyber warfare can be undermined governments it is a new and more
effective means of war, all the pros without the cons. If cyberwarfare were to
become the main means of warfare it would reduce the militaries dependence on
the support systems that Lockheed provide, not only will the halt future orders
but they will start to scale back use of current equipment and it support
services.

 

In conclusion Lockheed Martin success is largely due
to their close relationship with the government and their ability to manage and
use those relationships to their advantage, ensuring benefits such as tax cuts.
Lockheed Martin have excelled at forming strategic alliances with key decision
makers in the Department of Defence (DOD) and military as well as gaining
Congressional Support. Most of the contracts Lockheed Martin engage in with the
(DOD) result in profits for them. The brilliance of Lockheed lies in being able
to engineer a seemingly failure into their success. The brilliance of Lockheed
lies in being able to engineer a seemingly failure into their success,
sometimes profit. The most notable of these is the F-35 Project which many
critics have criticised to be failing due to many setbacks and budget overruns,
but somehow has still resulted in a profit for Lockheed Martin. Thanks to
excellent political engineering & lobbying the government is unlikely to
cancel the project but instead increase funding and its orders something it has
already done.