| Editor in Chief James D. Hessman and Senior
Editor Gordon I. Peterson interviewed Peter B. Teets, president and chief operating
officer of the Lockheed Martin Corporation, for this issue of Sea Power.
Peter B. Teets was appointed the
president and chief operating officer of Lockheed Martin Corporation and a member of the
Corporation's board of directors after serving as president and chief operating officer of
Lockheed Martin's Information and Services Sector. He held that post since the
corporation's merger in 1995. Prior to the merger, he was president of Martin Marietta
Space Group. Lockheed Martin is one of the world's leading diversified technology
companies. Its research, design, development, manufacturing, and integration work involves
advanced technology systems, products, and services for government and commercial
customers around the world. From corporate headquarters in Bethesda, Md., Lockheed Martin
is pursuing a corporate vision to be the world's leading technology and systems
enterprise. Its principal lines of business include aeronautics, space and strategic
missiles, electronics, information services, and energy-environment. Teets received his
bachelor and master of science degrees in applied mathematics from the University of
Colorado, which also presented him with an honorary doctor of science degree in 1990.
Teets also was named a Sloan Fellow and received a master's degree in management from the
Massachusetts Institute of Technology. He is a Fellow of the American Institute of
Aeronautics and Astronautics and the American Astronautical Society, and a member of the
corporation of the Draper Laboratory.
Sea Power: A decade ago, the
Department of Defense [DOD] represented approximately 90 percent of sales for the 17
separate heritage companies now constituting Lockheed Martin--now it is just 50 percent of
your business. What are the lessons you draw from that downsizing in today's defense
marketplace?
TEETS: DOD has always been our primary
customer, and it is certainly our primary focus today as well. However, given the fact
that the DOD marketplace is pretty flat these days and we do have a strong desire to be a
growing corporation, we have explored ways to take some of our technology and see if we
can't move into some services markets as well as commercial markets to take advantage of
potential growth. We have created a new operation, Lockheed Martin Global
Telecommunications, which is a major thrust toward serving some commercial global
telecommunications services markets. So we are actively engaged in that. We also think
that commercial-information outsourcing is a marketplace where we have a lot of expertise
and where we can provide a lot of added value.
Earlier this year, DOD released its
fiscal year 1998 report of top defense contractors, and Lockheed Martin topped the list
with the largest dollar volume of prime contracts--$12.3 billion. What accounts for your
success in capturing that share of the U.S. defense business?
TEETS: We have tried hard to focus the
entire corporation on something we call mission success. As a matter of fact, we say that
the core purpose of our corporation is to achieve mission success. We define that term by
saying that mission success is when we make our customers successful. So I would say that
has been a good rallying point for the entire company during these times of challenge and
consolidation. We have tried to build the corporation around that core purpose, and we
also have used a set of core values to weave a common fabric across the entire
corporation.
Because of reports of production
problems and slipping delivery schedules on some Lockheed Martin product lines, some
defense analysts have asked if your corporation is simply too big and complicated. How do
you respond--is span of control a challenge for you?
TEETS: I think we are definitely not too
big to be well managed. What we have tried to do is address the issue that you are talking
about because we do have a lot of diversity across the corporation. There are these
17 heritage companies, and we have operations ongoing in many, many states and in
countries around the world. What we try to do to properly manage the corporation is to
identify six sectors and organize around these major sectors: aeronautics, electronics,
energy and environment, space and strategic missiles, information services--and now
Lockheed Martin Global Telecommunications as well.
We have put in charge of each of those
sectors a very competent, capable, strong leader--a president and chief operating officer
for each sector. We give the sectors the necessary authority and autonomy to run their
day-to-day operations in a very businesslike way, service their customers well, get to
know their customers, and deal with them on a day-to-day basis. By doing this we break
this very large corporation up into six smaller corporations and run them accordingly.
Then what we try to do is unite the six sectors with our core purpose and our core values.
We also have an initiative under way
called "LM21 Best Practices," the purpose of which is to make sure we take the
best of Lockheed Martin in terms of process and practice and spread it across the entire
corporation.
Do you encounter so-called "blue
on blue" situations in your product lines--instances in which one sector of the
corporation is engaged in the same line of work and possibly working at cross purposes
with another sector?
TEETS: I think that in any corporation
with the diversity and complexity of a Lockheed Martin Corporation, one of the values you
have to live by and honor is teamwork. I will say that there are certain segmented
markets in which more than one Lockheed Martin company participates. What we try to do is
create an environment where teamwork is possible--where we can team together to bring the
best product to the customer. Rather than compete with one another, we try to work
together synergistically to bring best value to our customers.
You recently consolidated your naval
and electronic-warfare businesses to provide a single-management focus. How is this
realignment progressing, and what do you expect it will accomplish?
TEETS: It is progressing very, very well.
Joe [Joseph D.] Antinucci is a well-proven, tried, and trusted employee of Lockheed Martin
Corporation, and he has a terrific background in electronic missile-systems integration.
And in Navy procurement as well. Joe is providing strong leadership in the naval systems
and surveillance-systems marketplace. It's an effort to bring together Lockheed Martin's
operations that have common markets and serve the same customers in a single organization
so that we can focus hard on customer needs.
There is intense competition for
future Navy contracts in the combat systems and shipboard-electronics area. Are there
actions the Navy and the other services could take to integrate their programs more
efficiently to assist you in making smarter business decisions?
TEETS: I think that all of us in the
defense acquisition world need to continue to focus on achieving continuous improvements
in process and practice. I don't want to say that we are doing everything perfectly or
that the Navy is doing everything perfectly right now in the acquisition world.
On the other hand, I find people open to
new ideas of how to do things better. I think defense acquisition reform has made a
difference in terms of easing some of the stringent specification requirements on systems
that we used to have that now we don't suffer from. I find people in the acquisition
community all over DOD who are receptive to ideas from industry of how we can provide
better products on faster cycle times at lower cost. I think that--partially as a result
of all the industrial consolidation going on--people are more receptive to change and, as
new ideas surface, they are willing to embrace those ideas and get on a curve of
continuous improvement.
Could you update our readers on your
efforts to work more closely with Raytheon Systems Company on the Navy's Cooperative
Engagement Capability program and other shipboard-electronic systems?
TEETS: Certainly. Through the good
offices of Admiral Kate Paige [Rear Adm. Kathleen K. Paige, deputy program executive
officer, theater air defense & surface combatants], we were able to craft a definition
of roles and responsibilities that Raytheon could best perform and that we at Lockheed
Martin could best perform. That definition gives a clear indication of how competition can
be achieved on future add-ons. I think this is a good example of the acquisition community
working together to create win-win solutions. As a result, the Navy will get the best
product at the lowest possible cost, and we will have an opportunity to participate where
we have special strengths.
Is this arrangement comparable to the
teaming between Electric Boat and Newport News Shipbuilding on the new attack submarine
program?
TEETS: I think there are similarities. In
our case, what we are trying to do is bring to bear the technologies and strengths that we
have gained from our participation in the Aegis combat system; Raytheon has other
strengths and capabilities that they are bringing to bear, so together we will give the
Navy best value.
Last July, apparently be-cause of U.S.
government opposition, Lockheed Martin called off a proposed $8.3 billion deal to buy the
Northrop Grumman Corporation. Are there additional lines of business where expansion makes
sense to you--where does Lockheed Martin go from here?
TEETS: As you said, DOD did pull the plug
on that acquisition.That served as a signal to us that the major consolidations in the
defense industry are coming to a close. I think that one of the concerns that the DOD and
the DOJ [Department of Justice] had relative to Lockheed Martin and Northrop Grumman
merging was about too large a market share--and perhaps being too big a corporation. But
as we look forward, there may be small acquisitions here or there to fill some niche in
our defense business, but probably no major large acquisitions in the defense marketplace.
On the other hand, we are looking for
growth in some closely related commercial markets. I mentioned Lockheed Martin Global
Telecommunications earlier. This is an organization that we conceived last August and
started to bring together certain operating elements of Lockheed Martin Corporation under
the umbrella of global telecommunications services. In September we took the next step in
our strategy when we announced the plan to acquire Comsat Corporation. What this will
allow us to do is to expand rapidly into this very fast-growing global telecommunications
services marketplace.
So I would say that future acquisitions
and portfolio shaping actions that are appropriate will be made, but I would expect
any large deals to be outside the defense industry.
Lockheed Martin already is cooperating
with a number of overseas allies--in development of the [U.S.] Navy's Airborne Mine
Neutralization System with Germany's STN Atlas Elektronik, use of the Government
Electronic Systems' combat system and SPY 1D radar on a proposed "international"
frigate of Spanish design, and teaming with British Aerospace in the Joint Strike Fighter
[JSF] competition. Will there be more transatlantic partnerships like these in the future?
TEETS: Absolutely. It is clear, I think,
from recent military history, that the United States is likely to fight in the future as a
part of a coalition, so there is real merit in having industrial teaming going on at the
same time that we are engaging with our allies in coalition warfare. Lockheed Martin has
been very active in these transatlantic alliances and is getting to know mostly European
companies in terms of their capabilities.
As you just mentioned, on one of the most
important programs we are working on, the Joint Strike Fighter, we are teamed with British
Aerospace, who bring some great capability to our team. We have a high degree of respect
for the capability of British Aerospace and the kinds of people they have supplied to our
team. So that is a very successful kind of a teaming arrangement, and there are others as
well.
These arrangements create added
concerns about technology transfer, though, and about safeguarding U.S. national security.
Is that correct?
TEETS: Any time we have that kind of
industrial collaboration, it is vitally important that we properly handle the security
interests of the United States, and we are, I would say, extremely vigilant in
making certain that we do not have a security breach or any problem whatsoever along those
lines.
You also have established some unusual
joint ventures with Russian companies. Could you comment?
TEETS: Yes. We are involved in a joint
venture in Russia that will provide what is known as the RD180 engine to the Atlas 5 ELV
[Expendable-Launch Vehicle]. That is going to be a critical part of the propulsion system
for expendable launch vehicles, and we intend to offer this vehicle for commercial
satellites as well as for our enhanced ELV contract with the [U.S.] Air Force.
This program really involves three
parties--a Russian organization known as the Energomash; Pratt & Whitney, which has a
joint venture with Energomash on coproduction of the RD180 engine in the United States;
and ourselves. We are working very hard with, and through, the Departments of Defense and
State to obtain all the necessary licenses and approvals for transferring the technology.
In this case, it is particularly interesting, because we are not transferring technology
to Russia. Russia is transferring technology to the United States--a technology that
Russian companies have focused on for a lot of years, and they have some terrific
technology in this area.
Closer to home, and returning to the
Joint Strike Fighter: Could you bring us up-to-date on your company's development proposal
for this joint-service, multirole fighter program?
TEETS: Well, we are very pleased with the
progress we have been making on the Joint Strike Fighter. Late last year we concluded a
third technical design review in which we presented our design to the DOD joint program
office and received back their fundamental comments. They believe our design satisfies the
requirements of all three services.
That is a big deal to us, you know. We
have been working very hard to make sure that we could put forth a design that maximizes
commonality, achieves the kind of cost savings that we know the nation needs for joint
strike fighters and, at the same time, yields the performance requirements that each of
the military services needs. So we are very pleased with our progress to date.
Now we have started to put together our
prototype demonstrator aircraft, and we have had--it has been well-publicized,
actually--we have had a cost problem that we are working on with our customer. We believe
that it is not a serious cost problem and that we will be able to bring the program in for
the target costs, on schedule, and meeting all of the essential customer requirements for
the proposal and for the demonstration flights.
Given the Royal Navy and Marine Corps
JSF specifications for short-takeoff and vertical-landing capabilities, and the Navy's
requirements for a beefed-up structural design able to withstand the punishment of an
aircraft carrier's operational environment, is DOD perhaps asking too much in its efforts
to obtain a multiple-variant design for the JSF?
TEETS: I think not. It is ambitious, but
in my mind the key is requirement stability. The requirements are challenging, of course.
But, given that they stay constant, we are going to be able to create a design that meets
all the requirements of each of the three services, and at the same time effect the kind
of cost-reduction capability that will come from large-scale production and commonality
among the three different airplanes.
Lockheed Martin puts a premium on
R&D [research and development] and on innovation in its weapons programs. Your
Tactical Aircraft Systems group recently completed a study for the U.S. Navy on the design
of unmanned combat air vehicles [UCAVs] for launch from submarines, amphibious assault
ships, and surface combatants. Do you believe UCAVs will one day extend the aerial
firepower for these ships?
TEETS: UCAVs will clearly have a growing
role in military operations in the future, I think, as more and more autonomous capability
exists and we push this information-age technology forward. On the other hand, I am a
believer that we always will have manned aircraft--we will have a man in the loop in all
of the critical military operations we perform. But the UCAVs can be a very, very useful
adjunct to the operations as we go forward.
The Navy's systems commands have
renewed their commitment to a total-systems engineering approach for aircraft, ship, and
weapon-systems acquisition programs--to include a battle-systems architecture for the
Network Centric Warfare doctrine. Are you contributing to the sea services in the areas of
systems engineering and integration?
TEETS: We certainly think we are.
If I had to characterize Lockheed Martin as a corporate entity and talk about its
strengths, I would say we are an outstanding systems engineering and systems integration
company. We have strong capability in the space marketplace and the aeronautics
marketplace--and, yes, in shipboard combat systems as well, both above the sea and under
the sea.
I look at places like our Government
Electronics Systems [in Moorestown, N.J.] or the Undersea Systems Center in Manassas [Va.]
that works the submarine combat systems. Those facilities and locations are filled with
talented, very talented, people who have strong systems-integration capabilities--and we
are bringing that to the customer.
I think that one of the greatest
strengths of Lockheed Martin is our ability to move people around. We can bring talent
from the space and strategic missiles sector or the aeronautics sectors. Or we can bring
that kind of talent to bear on specific systems-integration activities for the Navy.
Lockheed Martin also places high
priority on the application of "best business practices" across its corporate
organization--it is noteworthy that you have a vice president for best practices. Could
you please tell us why this is so important?
TEETS: LM21 Best Practices is a vitally
important initiative, and we did put a corporate vice president in charge as a focal point
for the initiative across the corporation. As we went through our merger and consolidation
activities, we were able, through cost-cutting and consolidations--where we closed
literally some 30 different facilities and removed 16 million square feet of plant
space--to achieve very significant consolidation savings.
We track it regularly. We provide reports
to the government. And fundamentally we were able to achieve about $2.6 billion per year
in annual savings through consolidation activities.
Well, much of that consolidation activity
is now behind us, so we need to look for ways to continue to drive cost reductions into
our products so we can be even more competitive in the markets that we serve. One of the
true strengths of Lockheed Martin is the diversity of the heritage companies that make up
the Corporation. As you mentioned earlier, we are made up of some 17 heritage companies,
so we reasoned that if we could benchmark--map out the capabilities and practices and
processes in each of those heritage companies--then select the best and migrate it through
the rest of the corporation, we would have a huge ability to leverage the power of this
diversity.
So we engaged Booz-Allen & Hamilton
in an effort to benchmark all of our companies--a total of some 50 companies--and they
found some very interesting results. For almost any category of process or practice there
would be at least one Lockheed Martin company that is world-class. They also found that
there is no single Lockheed Martin company that has all of the world-class best
practices. That tells you how helpful it is to be able to identify and create an
environment where we can spread best practices across the corporation. And we have a very
intense effort on to do just exactly that.
Let me pick just a few examples:
Payroll--we probably have 20 or 30 different payroll systems within Lockheed Martin
Corporation. As we look at the cost of payroll per employee per year, we see we have a
huge range of variability. The best-practice company will be able to do that for a few
dollars a month. The least best-practice cost will be perhaps $15 to $20 per month to do
the same job. What we want to do, obviously, is pick the lowest-cost way of doing payroll
and spread it across the entire corporation.
Other real examples include the material
management centers, where aeronautics took an initiative a couple of years ago to put
together a common procurement clearing house for all procurement in the aeronautics
sector. You get huge savings from efficiencies in the procurement cycle, and we are going
to spread those same efficiencies beyond aeronautics into all the other sectors. We expect
to see in the end result something on the order of up to $3 billion annual savings, which
will flow primarily to our customers.
Are some best practices also related
to customer satisfaction, feedback, and engagement?
TEETS: Absolutely. There is no process or
practice in our operation that cannot be made better through best practice--which also
creates, by the way, an environment in the organ-ization that is receptive to continuous
improvement.
What are the metrics [performance
measures] you track most closely with regard to customer satisfaction and your
performance.
TEETS: One of the great metrics is
award-fees evaluation by customers. We take award fees very, very seriously, and we have a
huge number of contracts that include award-fee evaluations and ratings. We were very
pleased last year to achieve 94 percent in award-fees performance.
What that means is that many contracts
allocate a fixed number of dollars into an award-fee pool. Then you go through a formal
scoring process where the customer evaluates your performance against the contract over
specific time intervals, typically six months long. And, depending on how the customer
views your work, they will give you an award-fee score that can go all the way from zero,
literally zero, all the way up to 100 percent. Last year we earned 94 percent of all the
award fees available, which is the highest in our history. We are very proud of that--it's
a good indicator that we are serving our customers well.
In a speech to an aeronautical
engineering audience last year, you said that to prepare for tomorrow's challenges young
engineers should work in a nonengineering world, and should be taught to write and
communicate clearly. Would you please elaborate?
TEETS: As the world changes, I think more
and more we are finding that the best way to deliver quality products on time and at low
cost to customers is to organize and operate with what we call the integrated product
team. Which means that you take engineers, stand them side by side with manufacturing
people, and with operations people. Even very early in the design process these people
work together to create a total product.
Sometimes in this wonderful new
information age we are living in you don't have to be physically co-located but can be
connected by information-connect. What all this means is that engineers are no longer just
talking to other engineers. They have to talk to all kinds of different
people--procurement people, manufacturing people, the operations people, customers, and
many others. So I think it is terribly important that engineers learn communications
skills as part of their formal education. Some universities are forward-looking enough
that they are starting to teach integrated product team activity in the classroom. The
University of Colorado, for example, has a very exciting facility there--the Integrated
Teaching Facility--that we at Lockheed Martin helped to sponsor.
In short, it is very important in today's
world that engineers communicate on the broad front and work as teammates--no more working
in isolation and pounding around a computer, without engaging other parts of the team. You
have to engage the whole team.
You recently accepted the 1998
American Business Ethics Award presented in recognition of Lockheed Martin's commitment to
ethical business practices. What factors account for your company making ethics its
"number one" corporate value--and what does this mean in practical terms?
TEETS: I cannot tell you how important
proper ethical conduct is to the Lockheed Martin Corporation. It is a unifying part of our
corporation. We do a lot of training in many different ways. But there is only one part of
training that goes across the entire corporation. All 165,000 [Lockheed Martin] employees
take training in ethics and business conduct every year. We want to operate with the very
highest ethical standards. We do not want to skate close to the edge in any way
whatsoever. We want to meet both the spirit and the intent of the law, as well as the
letter of the law. And we make it real plain to our people that that is the case. We try
to provide them education, if you will, in ethical behavior because there are a lot of
gray areas, and until you confront certain of these situations it is hard to know exactly
how best to deal with them.
As part of our training we also emphasize
the communication means available to employees. We first urge employees to talk to their
supervisor. In some cases you can't talk to the supervisor, because they might be involved
in the case. Well, then you have a route up through the legal department if you like. We
also have a help line. You can call the ethics office directly if you so choose, and of
course we have ethics officers in all of our locations. In short, we want to be a
corporation that sets itself apart by operating with nothing but the highest ethical
standards. Receiving the ethics award last year in Philadelphia was a real thrill for me,
and a great honor.
But it really is a credit to the people
of Lockheed Martin.
With all that you are doing to advance
your corporate vision and goals, what one thing would you like to change if you could wave
a magic wand and make it happen immediately?
TEETS: That deserves some serious
thought. One thing that I want to see is for Lockheed Martin to create a true family
environment where we operate as a team. I think we are making good headway in that regard.
But we need to continue to make headway, emphasizing concepts like mission success,
ethical behavior, and the values we put out to our people to create the spirit of family,
the spirit of teamwork. I just want see that continue to progress.
Do you have any final thoughts for the
readers of Sea Power?
TEETS: Well, I read it and I like it!
|
