Electronic business: concepts, strategies, and applications

Value Chain Model Assessment for Lockheed-Martin

The intent of this memo is to evaluate how Lockheed Martin contributes to its external value chain, including how the company's heavy reliance on program management influences its execution of value chain strategies. As the majority of Lockheed Martins' revenue is generated through longer-term projects, their reliance on project management in conjunction with value chain integration is a critical series of business processes for the company. Figure 1 illustrates Porters' Value Chain Model first introduced in Dr. Porters' book, Competitive Advantage (Porter 1985).

Porter's Value Chain Model (Porter 1985)

The primary activities of Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales and Service form the primary activities of any value chain according to Porter (1985 followed by the support activities of the organization, human resources, technologies, and purchasing. Taken together these combination of factors create the value chain the all companies rely on to produce products, deliver services, and continually develop next generation products to serve the needs of their customers.

Overview of Lockheed Martins' Value Chain

The value chain of Lockheed Martin is quite complex, with many dependencies and interrelationships of tasks and processes. Figure 2 shows the Lockheed Martin value chain from a program lifecycle standpoint, as presented by Ronald Paulson, VP Engineering of Lockheed Martin (Paulson 2004).

Figure 2: Lockheed Martin Value Chain (Paulson 2004)

The high level of integration required of the core value chain is actually managed by the Program Management office, and in turn supported by six functional groups including Finance & Business Operations, Business Development, Legal & Contracts, it, HR, and Public Relations. The Lockheed Martin value chain itself requires close integration across business development, which typically handles the development of the first contracts with customers, followed by work with engineering, subcontracting, operations & logistics, and product assurance. Underlying all of these efforts is a matrixed organizational structure where responsibilities for each area are defined and executed to a series of project management schedules that have been communicated to the customer. Typically the Lockheed Martin value chain exists for decades as many of the projects are of very long duration. Value chains are highly unique in Lockheed Martin as they are created and sustained specifically for a given project, no matter how short or long-term. This makes the task of managing value chains especially difficult.

Opportunities for Improvement in Lockheed Martins' Value Chain

In evaluating how Lockheed Martin can become more effective in its value chain strategies, there is the immediate need to create a more agile platform to base the entire value chain on. The use of Service Oriented Architectures (SOA) and the extension of the value chain to services partners globally to handle Maintenance, Repair, and Overhaul (MRO) tasks is critical. Lockheed Martin expects to see a majority of their revenue from MRO throughout the next ten years, and the fine-tuning of their value chains will be essential for this goal to be achieved. In addition, Lockheed Martin needs to consider bringing their customers into the definition and strategic management of value chains, creating advisory councils to ensure their customers' needs are understood and reflected in the process workflows. The bottom line is that Lockheed Martin needs to look at the processes involved in each of their project value chains and create a Voice of the Customer Advisory Council program to ensure the value chains themselves stay relevant to customers over the long-term. In addition, the integration of value chains together within Lockheed Martin also needs to be considered in the future development of an enterprise-wide Services Oriented Ar4cfhitectrure (SOA) platform. The eventual integration of comparable processes across the many value chains in Lockheed Martin could lead to significant cost savings to the company across all divisions. Using an SOA platform this would be possible. The bottom line is that as value chains are generated on a per project basis within Lockheed Martin, the continual commitment to Business Process Management (BPM) and Business Process Reengineering (BPR) are critical if the company is to stay as competitive as possible in its execution of contracts.