L-3 is a prime contractor in Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (C3ISR) systems, platform and logistics solutions, and national security solutions; L-3 is also a leading provider of a broad range of electronic systems used on military and commercial platforms (L-3, N.d.). The company's client base includes an array of different organizations such as the U.S. Department of Defense and its prime contractors, U.S. government intelligence agencies, the U.S. Department of Homeland Security, U.S. Department of State, U.S. Department of Justice, allied foreign governments, domestic and foreign commercial customers and select other U.S. federal, state and local government agencies.
The L-3 concept was developed along three different central components that constitute the organization's high level objectives (L-3, N.d.):
Agility: L-3's ability to respond and adapt quickly to the needs of our customers and the environment.
Innovation: L-3's drive for developing new technologies, new ideas, and new ways of thinking to deliver the best solutions for our customers.
Commitment: L-3's continual focus on quality, service and performance to meet and exceed our customers' expectations.
L-3 defines its success by being flexible and responsive in their ability to meet our customers' needs. The company claims that every part of our business is focused on quick and agile response, innovative thinking and a relentless commitment to getting the job done. The company is currently a top ten defense contractor and has delivered government solutions to the U.S. defense organizations for over a decade.
L-3 Communications Holdings, Inc. was founded in 1997 and is based in New York, New York (Roge, 2012). L-3 Communications Holdings, Inc., through its subsidiary, L-3 Communications Corporation, provides command, control, communications, intelligence, surveillance, and reconnaissance (C3ISR) systems; aircraft modernization and maintenance; and government services in the United States and internationally. Its C3ISR segment offers fleet management sustainment and support. The company's Government Services segment provides communication software support, information technology services, and various engineering development services and integration support (Roge, 2012).
It's Aircraft Modernization and Maintenance segment offers modernization and refurbishments, upgrades and sustainment, maintenance, and logistics support services, as well as turnkey aviation life cycle management services for military and various government and commercial customers. The company's Electronic Systems segment provides components, products, subsystems, systems, and related services across various business areasL-3 Communications, with $15.5 billion in estimated 2011 revenues, is an historically acquisitive maker of military and homeland security electronics, and conducts business through four operating segments. The company's primary end-markets consist of the U.S. DoD (76% of 2010 revenue), international customers (13%), other U.S. government agencies (7%), and domestic commercial customers (4%). Sales to the DoD were distributed among the armed services as follows: Army 25% of sales, U.S. Air Force 25%, Navy and Marines 16%, and all other defense customers 10% (Roge, 2012).
The demand for company's military weapons systems is driven primarily by growth in the U.S. defense budget. With the last decade, the procurement and R&D budgets within the U.S. defense budget grew at 9.0% and 7.6% compound annual growth rates (CAGRs), respectively which represents a strong growth market for the company; however, Standard & Poor's expects growth in the U.S. defense budget to flatten out or decline going forward, due to pressure resulting from high U.S. budget deficits and this level of growth may no longer be sustainable indefinitely (Roge, 2012).
L-3's innovation strategy is centered on a concept that they refer to as situational awareness (L-3, 2012). The company defines this innovation strategy as:
Situational awareness has always been critical to our customers, and L-3's ability to adapt is integral to everything we do. Our strategy is defined by our focus on the evolving geopolitical, economic and market forces that create the landscape in which we operate. This is L-3's strength -- the ability to deliver in every environment (L-3, 2012).
The idea is that the company monitors the environment and develops solutions to help their client's tackle obstacles when they arise. The company proactively tries to integrate with its clients and be responsive to whatever situation arises in the world.
The company promotes innovation through a variety of different routes and even through external partnerships with strategic partners. Recently, MEMS manufacturer Innovative Micro Technology (IMT) announced that it has secured a $5 million equity investment from L-3 Communications (L-3) of New York City, New York, a leading defense company (IMT, N.d.). The two firms will collaborate on defense-related projects involving micro-electromechanical systems (MEMS), including but not limited to weapons guidance systems and communications technologies. IMT will partner with L-3 in a variety of areas but remain diversified with ongoing projects in microfluidics, communications, microwave, biomedical, biotechnology, and other applications for new and existing customers (IMT, N.d.). This strategy has allowed L-3 to innovate through the technical synergies that it created with a leader in a developing technology.
Planning for Innovation
The company is currently restructuring itself and spinning off one of its divisions to make the entire organization better positioned to maintain a competitive advantage. The new company will be publically traded and operate under the name Engility, which is a combination of the word engineering with the word agility. The new company is intended to be a leader in the acquisition and engineering services, training programs, and sustainment support for U.S. government operations around the globe. The new company is expected to create synergies for both organizations as well as free the new organization from various conflicts of interest that it faced under the L-3 umbrella.
Another move that L-3 has recently made is to acquire the Kollmorgen Electro-Optical (KEO) unit of Danaher Corporation. This acquisition will bring new customers and proprietary systems to L-3 that will broaden our capabilities, including submarine photonics systems and periscopes, ship fire control systems, and visual landing aids. KEO extends our base in the electro-optical/infrared (EO/IR) market with products that enhance L-3 content in high-priority areas such as Virginia-class submarines. This transaction exemplifies our disciplined, highly selective approach to acquisitions that enhance our core business mix at attractive prices (L-3, 2012).
L-3 Communications is constantly reorganizing its efforts and its structure to take advantage of developments in the external environment. Through these means it can position itself to be more responsive to the changes that are taking place in the related industries through both vertical and horizontal expansions. The industry is under a constant dynamic state as conflicts arise over a broad geopolitical spectrum and the military's and defense organizations adapt to new challenges. By positioning the company in the ideal organizational structure, the company can promote an environment that fosters innovation.
Management Systems and Innovation Metrics
The ultimate innovation metric is undoubtedly grounded in the financial aspects of the company. Innovation by itself will not satisfy stakeholder expectation. Therefore all innovation metrics must ultimately involve some financial metric. The performance of L-3 Communications over the last ten years has been strong in regards to the company's financial position.
The company earns net margins that range from roughly four to six percent on average. However, profitability fell some in the most recent quarter.
Figure 2-5Q Performance (Wikiinvest, 2013)
Rewards and Incentives
There are many different ways to motivate organizations and the type of strategy that is selected should be based on the individual and the organization. High level employees are commonly given a performance bonus for successful performance. Although styles of leadership have been shown to improve performance, it would be difficult to foster an environment of innovation without some financial compensation for creating solutions. The key is to keep learning and experimenting with different reward and incentive structures until you are able to find one that works. Furthermore, even after you find one it may not work indefinitely and therefore the organization might have to continually work on different strategies to keep the employees motivated. L-3 Communications currently has a reward structure in place to compensate performance. However, it is difficult to find much information about their practices and these practices likely vary on a case by case basis.
Although formal training has been shown to be an effective method for the organization to learn new skills, there are several other ways that employees can gain skills that can translate into innovation. Informal learning has been argued to represent one of the most prevalent forms of learning in the workplace and has been described as an iceberg in which most of its mass is hidden beneath the surface (Halliday & Beddie, 2009). Researchers have just began to develop the concept of informal learning and It may be of significant interest particular to companies that thrive in a volatile industry as employees can identify the needed skills on their own behalf.
Informal learning is also closely tied to organizational culture. Individuals are…