News

Published Sunday, September 19, 1999, in the San Jose Mercury News

BUSINESS/JAMES J. MITCHELL

Lockheed's merger not a good thing

BY JAMES J. MITCHELL
Mercury News Staff Writer

IT'S a shame that Martin Marietta's acquisition of Lockheed is following the example set by IBM's purchase of Rolm in 1984.

And it's incredibly dumb, considering companies like Cisco Systems and Lucent Technologies have demonstrated in the '90s better ways to deal with acquisitions.

IBM tried to impose its processes and values on Rolm, crushed its culture and morale and eliminated what had made Rolm so successful. Big Blue eventually lost more than $1 billion on the deal.

Since being acquired by Martin Marietta in 1995, Lockheed has been Martinized, with Martin executives setting the tone and calling the important shots. Lockheed Missiles & Space Co. of Sunnyvale has been one of the primary victims.

As a result, LM&S, one of the jewels of Silicon Valley and of this country's aerospace and defense industry, has declined substantially in size and quality. Employment has dropped from 12,000 when the merger was announced to 8,000 today. And it's likely to shrink further because the parent company's string of launch failures is making it much harder to get new contracts.

Are you going to use a Rolls-Royce or a Yugo, a Dell or a Packard Bell? asked John Pike, a defense analyst for the Federation of American Scientists. Lockheed Martin is rapidly developing the reputation of being the Packard Bell of the defense and aerospace industry.''

LOCKHEED MARTIN has worked hard to lose the credibility that they had, said Paul Nisbet, an aerospace analyst for JSA Research Inc. It's going to take a lot of time and effort to regain it. Lockheed officials dispute these assertions, saying that the company was forced to cut jobs as the defense industry shrunk years before the Martin Marietta merger. Also, they reject the characterization that they've been ``Martinized.''

Lockheed Martin's problems became so serious -- and obvious -- that it appointed an outside panel, chaired by a former Martin Marietta president, to investigate. Its report, released 10 days ago, blamed the troubles on too much cost cutting and too little quality control.

That assessment was echoed by several retired high-level LM&S executives I interviewed.

One problem, they said, is that Lockheed Martin purchases parts and systems and integrates them into their rockets and satellites without proper inspection. Instead of doing its own tests, which can be very expensive, Lockheed Martin often relies on assurances from suppliers who comply with ISO 9000, a set of broadly accepted standards.

When you have $1 billion riding on one chance of firing a rocket, it had better be right, said one executive who, like the others, asked not to be identified. That's not the place to be cutting a few corners.

ANOTHER issue LM&S veterans cited is a reduction in overall management. LM&S used to emphasize the development of managers through extensive coaching and managing by walking around. That has largely disappeared, they say.

Indeed, managers today meet much less frequently and rely on memos and e-mail. We used to sit around a table . . . talking about what was going on, what the bird was supposed to do. It was structured, disciplined, and there was a great deal of give and take by knowledgeable people, one veteran said.

Not all of Lockheed Martin's problems can be blamed on today's management. The company comprises what once was four dozen independent entities, each with its own management system and culture, Nisbet said.

Still, some Lockheed Martin managers seem to ignore reality. Peter B. Teets, the company's chief operating officer, said implementing the panel's recommendations -- which includes greater oversight and more testing -- wouldn't increase costs.

Doing that, in my opinion, would take more than rocket science.

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