Term Paper on "Lockheed Martin"

Term Paper 4 pages (1537 words) Sources: 1+

[EXCERPT] . . . .

LOCKHEED MARTIN Corporation or LMT is an organization involved in research, designing, development, manufacture, integration, operation and supports of a variety of advanced technology systems, products and services. The Company has its principal customers in domestic and international defense, civil and commercial markets, with its important customers like the agencies of the United States Government. In the year 2003, about 78% of its total net sales were made to the United States Government and its organizations. About 16% of its net sales in the year 2003 were made to foreign governments and their different services. About 6% of net sales in the year 2003 were made to purely commercial customers like launch services, satellites and information technology services.

We shall now perform a SWOT analysis for the organization.

Regarding the strengths the company has always been among one of the largest, most diversified defense contractors who supply important material to the government. This was also reflected in certain contracts that it received from the government as it received the largest government contract of $30B through 2030 for production of F-35 and F-22 Fighter Jets. The financial situation of the company has now improved and reduced debt and lower interest obligations have given LMT financial flexibility. The company has a wide and diversified product offering which cater to major segment growth including space exploration, and requirements for defense both at home and abroad. The company has recently taken over Titan Company and this agreement with Titan Co. provides strong diversification among the organization's existing capabilities. They also provide LMT with strong margins and had provided $1.8B in 2003 revenues. (Lockheed Martin Co: University of Oregon Investment Group)

Regarding its weaknesses, the company has a high level of debt, although moderate in comparison with others in the industry, still must be reduced to give LMT greater financial strength. 50% of year end 2002 backlog of $70.3M worth of contracts to be completed is in the form of cost-plus contracts. Cost-plus contracts with the government that are taken up traditionally attain small gross margins of the range from 5%-9%. Thus, this portion of the contracts will have less profitability. Due to the nature of business, the general split-up of contracts are also expected to remain the same. (Lockheed Martin Co: University of Oregon Investment Group)

In relation to opportunities, there is a continued conflict in the Middle East and Afghanistan which are likely to provide facilities for getting further government funding for development and growth of business in the future. The company has recently expanded IT services and solutions business and this is likely to keep the organization poised for improved strong growth in the industry. There is now greater likelihood for future space exploration and missions which will provide expanded growth for LMT Space Systems and Technologies business. NASA has increased their budget by 47% last year and is likely to grow further. There is now a strong contractual agreement from the U.S. For LMT missile defense systems and that is promoting international interest from other countries like the Netherlands, Japan and Taiwan. Some of them may also come in with similar agreements. (Lockheed Martin Co: University of Oregon Investment Group)

Regarding threats the expected pull out from Iraq could have adverse effects on the Defense budget and also Defense supplier companies. There is an increase in demand from the Defense sources for smart, non-traditional weapons for the fight against terrorists which will continue, but the shift in preferences may take away business from LMT existing product lines. There is also a demand for unmanned military aircraft and that also may decrease the demand for existing LMT aircraft that are being supplied to defense. (Lockheed Martin Co: University of Oregon Investment Group)

Next we came to the External factor evaluation Matrix or EFE. This permits strategists to make a summary of and thus evaluate the economic, social, cultural, demographic, environmental, political, governmental, legal, technological and competitive information. (Steps in Preparing a Comprehensive Written Analysis) This is quite a large analysis, and we shall confine ourselves to considering only the principal influence behind the development of the business for Lockheed Martin, but there are disputes as to whether this is valid after their acquisitions of other organizations. A study was completed by Lockheed Corporation in 1997 for them to be able to evaluate the best areas for investment in the defense industry with which they were concerned. (Winning wars quicker with less casualties and resulting in a better State of Peace)

There have been declining budgets and projections of budgets for sometime now and it made imperative for them to concentrate their focus on areas that the defense planners were most likely to concentrate on. This also meant that the general aim of the defense planners will be to meet the security objectives, was affordable within the budget constraints and still came with a downsizing after controlling possible risks. Looking at the situation with this view in mind, they came out with an investment strategy for future reductions in forces and their capabilities. The affordability issues were still the most important, but the requirement of funds was still $20 billion over the projected annual budget! (Winning wars quicker with less casualties and resulting in a better State of Peace) The view may have changed since this analysis due to 9/11, but no official papers are still available on the same.

The next strategy formulation tool is the IFE Matrix and this method summarizes and evaluates the major strengths and weaknesses in all functional areas of business and also provides a basis for the identification and evaluation of relationships among those areas. In this technique, intuitive judgments are required and thus though the name may be scientific, yet the results may not be all powerful. (Steps in Preparing a Comprehensive Written Analysis) The general view is that Lockheed Martin is a Model 2 organization and this has two main types of interaction with the business units. The first part of this is that the organization has to support the CEO's efforts to set up a performance contract with the business units, and the second part of it is that the core identifies opportunities to create value in a strategic or operational manner across Strategic Business Units. (The Model 2 Organization: Making Your Company Safe for Zealots)

The core consists of 500 or so executives at the top of the organization. This evaluation of Lockheed Martin can be seen from its motive to share the best practices that it has through all functions like engineering, program management and operations. This philosophy of strategy and oversight is created from the concept that value is being created for the company which is being done at both the operating companies. This enables to maintain almost the closest links possible with the customers and at the level of the corporation which allows maintaining links between the operating sections. The job of the corporate core is to set its corporate strategy and policy. This is to initiate that the best methods to create value above and beyond the operating companies' value are being developed. This may be done by means of sharing of the best practices or getting business. This would also help to create as well as to enforce a disciplined performance management model.

The structure is very significant for ensuring that there is a process of alignment and facilitating adaptability throughout the entire organization. These jobs would enable the organization and its several business units to recognize certain common objectives, share a level of understanding and increased information, develop processes of standardization so that the objectives are being fulfilled, able to recognize the discontinuous threats and opportunities which are prevalent and inform them to the people involved in decision making, to experiment and also to implement new and… READ MORE

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