Lockheed Martin is a leading security and defense company based in Bethesda, MD with operations that span the globe. Lockheed Martin experienced a positive turnaround under new CEO Robert Stevens’ leadership, and is now entrenched as a leading competitor in the Aerospace and Defense (A&D) industry. They maintain an extensive business portfolio and continue to increase shareholder value. However, recent issues with contract mismanagement and cost overruns involving the government F-35 program leave a negative outlook on their operations. They also face increasing pressure to acquire and retain key employees from a diminishing talent pool. Government budget cuts threaten to hurt revenues, thus making it important for them to find new revenue streams.
1. Contract Mismanagement
2. Overreliance on U.S. government
3. Unattractive to key talent
Lockheed Martin operates in the Aerospace and Defense industry. It is highly competitive with the key success factors being innovation, quality of management, contract management, attracting and retaining key workers, and program performance. (See appendix 2 for industry matrix) The Aerospace and Defense Industry is best defined as an Oligopoly, while the civil aerospace sector is defined by a Duopoly. 90 percent of industry revenues come from the twenty largest companies (Hoovers, 2011). There is no one SIC code that best fits the industry due to the various sources of revenue within the industry. The SIC codes that apply are: 3761 guided missiles and space vehicles, 3721 aircraft, 3724 aircraft engines and engine parts, 3728 aircraft parts and equipment, 3764 space propulsion units and parts, 2769 space vehicle equipment. The industry as a whole is made up of around 1300 companies, most of which specialize in few areas, such as engines and navigation systems, and are subcontractors to the largest companies (Hoovers, 2011). Major players in the industry starts with the U.S. Government, because the industry is controlled, to an extent, by the Defense budgets implicated by the United States. Corporate profits play a large role in the industry as they affect the demand for commercial air travel, impacting companies like Boeing. Leading competitors and their respective market share are as follows: The Boeing Company 7.4 percent, European Aeronautic Defense and Space Company 6.9 percent, Lockheed Martin 4.9 percent, BAE Systems Plc 3.8 percent, with the remaining market share being 77.4 percent. (See appendix 1 for chart) Because this is an Oligopoly and no one company has a significant market share, competition is very intense. Obtaining government contracts is how most companies generate revenue, which is why competition for these contracts is so intense. Because of this competition having an advantage in quality of product or quicker lead times (time of production) can be very advantageous. The current economic environment for this industry is in large part dependent on the United States market and its government spending. Because of inconsistencies in government spending, it can be hard to forecast revenues. The past few years the industry has thrived due to high government spending and defense budgets due to involvements in the Middle East. However, due to recent recession and the need to decrease the government deficit, Defense cutbacks are expected. The Civil Aerospace sector relies on overall corporate profits, which are up in 2011. Civil Aerospace is projected to continue growth. Trend forecasts predict increased demand for passenger and cargo aircrafts of 25,000 to 30,000 over the next 15 years. The only significant demographic trend is that the United States alone accounts for 54% of industry revenues. This leaves the majority of the industry vulnerable to the fate of the U.S. economy. Politics have a significant effect of the industry, mostly in Defense. Government spending is crucial to business, so changes...