Shifting its focus

No longer the top federal integrator, Lockheed Martin sets its sights on a new strategy

In lean economic times, business school sages say smart companies should concentrate on promoting their strengths and pleasing their existing customers. That's a philosophy Lockheed Martin Corp. is taking to heart these days.

Energy, Justice, Transportation and Treasury, said Jerry Lindstrom, vice president of business development for Lockheed Martin Systems Integration.

"Basically, our objective is not really to be the biggest systems integrator, but the best," Lindstrom said. "We define best in terms of what our customers think about us. That's our main goal."

Lockheed Martin fell to third place this year on Federal Computer Week's list of top 20 systems integrators, after laying claim to the No. 1 position on the federal integrator list for years. During the government's fiscal year 2000, which ended Sept. 30, 2000, Lockheed Martin posted $555.5 million in federal IT revenue, compared to $566.5 million in federal contracts accumulated during fiscal 1999, according to research firm Eagle Eye Publishers Inc.

The slide doesn't worry analysts. "When you use contract awards to build rankings, the result can be somewhat lumpy because you can have large contracts one year that bring you up, and then they don't appear in succeeding years," said Philip Finnegan, senior analyst with the Teal Group Corp., Fairfax, Va. "Also, the change in Lockheed's rankings might have something to do with their divestitures."

During calendar year 2000, Lockheed Martin sold two of its major businesses to BAE Systems North America: Control Systems, a supplier of electronics controls for commercial and military aircraft, and space and ground transportation systems; and Aerospace Electronics Systems (AES), a maker of aircraft self-protection systems, tactical surveillance and intelligence systems, and infrared sensors.

Lockheed Martin sold the two companies after conducting a comprehensive strategic review of its businesses in 1999. At the time of the agreement to sell the AES division for $1.67 billion in cash, Lockheed Chairman and Chief Executive Officer Vance Coffman said the company was evaluating other divestiture candidates as part of a plan to "refocus" operations. Lockheed Martin announced July 19 that it would sell IMS Corp., an IT and business process outsourcing subsidiary with 4,800 employees and 250 offices in the United States and Canada, to Affiliated Computer Services Inc.

"Basically, our strategy has been for last year a transition out of the hardware/black box business through our divestitures of AES and Controls into a business systems integration focus," Lindstrom said. "That, over time, will change the business mix that we have across the corporation more toward systems integration activity."

Lindstrom said he believes a coding-specific search of Lockheed Martin's contracts would indicate that the company's annual federal sales in its systems integration division would come close to $906 million. The codes used to compile the integrator list, Lockheed Martin executives contend, may have missed some integration work classified under other codes such as "Electrical Equipment, Machinery and Supplies." Some of the projects Lindstrom included in the higher sales figure are:

* A $1.5 billion contract for the 15-year Air Force Integrated Space Command and Control program, won Sept. 20, 2000, which involves integrating approximately 40 systems into a common, interoperable IT infrastructure for the North American Aerospace Defense Command and the Air Force Space Command.

* A $147 million contract for the U.S. Strategic Command's Computing Environment Stratcom Architecture program, won in September 1998. Lockheed Martin was responsible for managing the integration, mission support and modernization of the Stratcom's computing infrastructure.

* The six-year development contract — awarded in 1995 — for the U.S. Transportation Command's Global Transportation Network program, a supply chain management system that collects data from 30 Defense Department IT systems and 30 commercial systems.

Lockheed Martin also has programs to provide systems integration services for optical character recognition for the U.S. Postal Service; for the Global Positioning System satellite-based navigation system for the Air Force; and for air traffic management for the Federal Aviation Administration. In May, the company snagged a $217 million contract to modernize the FAA's air traffic management systems at the Oakland, Calif., New York and Anchorage, Alaska, air route traffic control centers that handle ocean-crossing flights.

And Lockheed Martin's fortunes could improve if some big contracts go its way. The company is competing against Science Applications International Corp. and Northrop Grumman Corp. for the Coast Guard's Integrated Deepwater System, which is potentially worth $10 billion overall. The contract is scheduled for award in March 2002. The Department of Housing and Urban Development also plans to award a new contract early next year to replace the 10-year, $526 million contract Lockheed Martin won in 1990 to run the agency's IT systems. Also competing for that contract are Booz-Allen & Hamilton Inc., Electronic Data Systems Corp., IBM Corp. and SAIC.

"We're growing things here organically," without buying other companies, Lindstrom said. The first part of that strategy is to expand market share among existing customers. Then, he added, "the real key to organic growth is to find the opportunities to apply the highly transportable integration skills that we have with these people to the needs of customers we don't have yet."

Browning is a freelance technology writer in the Washington, D.C., area.

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