Opening Of The Center For Leadership, Innovation & Change
Remarks By Robert J. Stevens
Chairman and Chief Executive Officer,
Lockheed Martin Corporation,
Robert H. Smith School of Business,
University of Maryland
College Park, MD - 10/01/2010
Thanks, ladies and gentlemen. It's very nice to be here with you today. I'm told so we get off on a good footing here today that there may be some coffee service in a few minutes. I want to make sure you understand that the coffee service is in no way associated with the fact that you may need caffeine for the next 45 minutes while I'm here.
First, I want to congratulate all the members of the Smith School community on the inauguration of this center because I certainly think that your actions in moving forward with this initiative couldn't be more timely and couldn't be more needed. When we look around the globe today, we see a mounting level of challenges that we are all going to face. We think leadership is the common denominator that will help us all face these challenges.
I was particularly captivated by the approach that you have in the mission statement that talks about higher standards for social responsibility and sustained stewardship, and we think they're very well aligned with the kind of demands we're all going to face. And Dean Anand, I'd like on a personal note to congratulate you on your leadership of the Smith School. I certainly believe that your dedication to the mission and the standard you set for excellence are really exemplary and are to be admired. We thank you for that, sir.
As was mentioned, our company has a very long and I think very strong relationship with the university that dates back more than 60 years. Glenn L. Martin, who was an aviation pioneer and also one of our company's namesakes, helped establish the university's Aerospace Engineering Program in 1949. And that program today is ranked among the finest in the world today.
It was, in fact, one of the other predecessor companies that became Lockheed Martin – the Martin Aircraft Company – that hired the first master's degree graduate in aeronautical sciences in 1950. That graduate's name was Dale Scott. And that pattern established a decades-long relationship where we've drawn talent that has been educated here at the university. Quite literally, Dean Anand, over the decades we've hired thousands and thousands and thousands of the university's graduates. And a number of our top executives today are very proud to call themselves alumni, including our President and Chief Operating Officer, Chris Kubasik, and our Executive Vice President responsible for worldwide information technology business – her name is Linda Gooden.
So for us, the relationship with the university is very personal and very meaningful. We have all benefited a great deal from the work you do here, and we're grateful for that. We're also very much looking forward to the future together. Just this past June we announced an expanded strategic relationship that is going to focus on innovative approaches to meeting global security challenges – challenges like logistics and sustainment, climate change and cyber security – and we're going to expand our collaborative research and development programs that will be the genesis of many new avenues we can pursue together.
Throughout our company, we feel the relationship here is quite special. We feel we're members of the same community that have a shared set of goals and values and interests, and we're grateful to all. Today, our company is an enterprise of about 136,000 professionals who are focused on global security missions, supporting customers not only here at home in the United States but with friends and allies around the globe.
As the very definition of global security expands from military preparedness to intelligence capabilities … from enhanced services for citizens from civil government agencies to extended support for humanitarian relief missions … and, importantly, more effective stewardship of critical resources, quite literally, the sun doesn't really set on the work that we do in 75 countries. As we examine the environment that is shaping our new challenges of leadership in the 21st century, it's very clear to us that we are being moved by forces both outside our company and inside our company that are without precedent, and that we're surely facing a new reality that will place new demands on our leadership.
So to understand our approach to leadership development, which I want to cover in a minute, I think it's helpful to first get a sense of what those demands look like. In the external environment, our new reality is driven by two forces – changes in global security and evolutions in the world's economic conditions. In a phrase, the global security environment is only getting more complicated.
Let me offer you a short list just highlighting the areas of focus that span the forefront of our considerations across our company. Traditional threats persist in the form of a conventional arms buildup and the proliferation of technologies including, importantly, the emerging domain of cyber security. The earliest reports of sea piracy date back to about the 13th Century B.C. And you might think that after 1,500 years we would be able to neutralize these threats, but, actually, reported incidents are on the rise. The world has had nuclear weapons now for 65 years. In my opinion we have far, far too many of these devices today. Yet Iranian aspirations for an advanced weapons program are very clear. Materials and technologies continue to proliferate, and that proliferation will require a response.
We know that terrorism is changing in form from a more centralized structure to a more loosely affiliated franchise model. We know that it is resilient. We know it's elastic and we know that it will persist. And we must remain vigilant, and we will. Happily, it's been some time since we've read about the H1N1 virus in the headlines. I don't know about you but whenever discussions turn to the prospect of a pandemic, it always sounds so improbable today. If you've read anything about the 1918 pandemic, it just seems so astronomically removed from where we are today. Yet the fact that virulent viruses mutate is a very well established fact in science and the risk is very real and we ought to be prepared.
Our citizens and our civil government agencies recognize that improving the quality of services and the timeliness of response while reducing the burden to taxpayers is an enduring imperative, and they will pursue that imperative. Each day you and I watch people around the world cry out for help in some fashion, in the most tragic and heartbreaking circumstances, and the demand for basic humanitarian assistance in the form of food, water, shelter, medical care, infrastructure, and education only will grow. Human beings also have an inherent instinct toward exploration and there's so much we don't know about our universe and so much we don't know about our planet.
And each day I believe there's a growing awareness of the fragility of our environment and the need for responsible approaches to stewardship and sustainability as we search for a new energy architecture. All these things and many, many more create a huge set of demands on our customers and on us. And you'd like to think that with this increasing set of demands there would be an increasing supply of financial resources that would be able to align and meet these demands. And, of course, today that's not the case.
As security matters grow more complicated, we're facing the toughest economy we've seen in 70 years. We are coming through a genuine crisis in banking and liquidity, and slowly emerging from a recession, albeit with rates of unemployment that are higher than we'd like to see and growth rates that are lower than we'd like to see. For our company, we pay particular attention to the country's balance sheet. Here you might think of the level of the national debt. In overly simplified terms, I believe we've come through a 20 to 25-year leverage cycle where individuals, households, communities, businesses, and governments all borrowed. This borrowing in part fueled consumption and to some degree fueled investment. And with borrowed resources, we can all do a little more, which is great. You can spend what you earn plus you can spend a little bit more from that which you were able to borrow, and that feels very good. And for a while that is very good for the economy all the way up until the point where you can't leverage anymore and you have to start to repay the amounts that you borrowed previously.
And I believe that's where the country is now. And that's why I think a comprehensive approach to deleveraging will dominate policy discussions over the next number of years. For the math majors in the room, our national debt is about $13.4 trillion. Let's look at some numbers. This year's deficit is projected to be about $1.4 to $1.5 trillion. It forecasts the future deficits, while they vary a little bit, will be in the hundreds of billions to trillions of dollars class year over year for the foreseeable future, with a gross domestic product of $14.6 trillion in second quarter growth, which has been now increased from 1.6 to 1.7 percent. Debt will likely exceed the entirety of our nation's productive output by 2012 or 2013. That is an unsustainable and unacceptable posture.
So the new reality that we're all going to face together is one that's characterized by escalating demands and constrained resources where the velocity of world events is only going to increase and the volatility associated with those events is only going to grow. And this is the external world that our leaders must not only face, but master.
Internally, we have several challenges as well. Let's start with the notion of a generational change. If I were addressing only the attorneys in the room today, I would tell you that our workforce is getting more mature. For the rest of us, we're getting old.
You remember that first master's degree student I mentioned to you – Mr. Scott? It is entirely possible in our economy that members of his class are still on our payroll. And I mean that quite literally. In my seven-year tenure as CEO, I've signed innumerable letters of congratulations to retirees who are leaving after 50 and 55 years, and I've signed a handful at 60 and 65 years, which I think is a very rare phenomenon in business today.
Today, baby boomers make up about 60 percent of our workforce. The backbone of our company is moving to retirement almost all at once, certainly over the next handful of years, and they're taking a huge amount of experience with them. And the question for us is, how do we replace all that experience over a relatively short period of time? No company – no company has had to face this challenge before. Believe me, I've searched for a precedence so I could try to better understand how to do this, because there's never been a baby boom generation before.
Lockheed Martin is not unique. If you look at the Aerospace Industries Association – here you should think about 300 companies representing about 625,000 employees – 60 percent of that workforce is 45 years of age or older. Twenty-seven percent is retirement-eligible today. They can go through the door. And amazingly, only 22 percent are below the age of 34. If you don't work in this industry and these aren't your demographics, you still need to care because your federal government is similarly situated. Within the next few years it's estimated that a third of the federal workforce will retire and about half will certainly go over the next ten years. Again, this is a challenge without precedent.
For us, this generational transition must take place at a time when the velocity of change in almost every aspect of our business life is accelerated. It took radio 38 years to reach 50 million people. It took the iPod five years to reach more than a hundred million. In 1992, there were a million Internet devices. Last year there was 1.6 billion. Google didn't exist in 1997. Today the world searches more than 34,000 times a second or 20 million times since I started these remarks. Facebook is now six and a half years old. If it were a country, its population would be the size of the United States and Canada and Denmark combined. We now communicate at the speed of electrons with content that can become viral instantly, and that is not going to change.
So we’ve concluded that given the magnitude of external and internal challenges that we are facing, the single greatest determinant of our future success is the quality and the character of our leadership and it is why talent and leadership development is our number one strategic priority and it has been for a number of years. And as part of our approach to developing leaders, we've developed several foundational convictions.
First, it's essential to get the very best in talent. For us, recruiting and retention is a very high priority and when we have discussions with prospective employees we talk about what would be a total value perspective for the company. Do you have stimulating work? Will you work in challenging assignments? Will you have an opportunity for professional growth and career development? Of course, we talk about salary and benefits. And to give you a little insight as you think about your leadership development programs, very early on in my tenure I talked to our summer interns. These are folks sort of trying us on for size and we're trying them on for size. They're college students. And I was hugely impressed that they weren't asking very much about salary. They wanted to talk about benefits. And the benefit they wanted to talk about most is vacation. Vacation!
I can tell you when I started, I worked for a person who wasn't highly conversational. I don't think vacation ever came up in the interview process. And when I was working, my boss came by one day, and said, "Oh, yeah, you get two weeks’ vacation. We're really busy, you can't take it. Get back to work." That was literally the full expression of discussion about vacations.
In talking to summer interns, they were talking about their desire to have four weeks of vacation in their first year, rather than two, because they were concerned about work-life balance. And I got to tell you, thankfully I didn't say this, but honestly, my first reaction, which won't reflect well on me, is don't you have to work before you worry about work-life balance? You’re students. But happily, I did not say that. And I listened to them and you would be very impressed because they spoke about being affiliated with community groups, church groups, groups of students that they have known – some even back in their high school classes – where for year over year now they were involved in philanthropic programs, community service programs, outreach domestically, internationally, rebuilding houses, cleaning up parks, setting up playgrounds – and the kind of things that made me feel smaller for having the first thought because that isn't what I did on my vacations when I was their age.
And I certainly thought that they were very persuasive in their argument. We changed our vacation policy as a result of those discussions, and I've concluded that this generation that's coming into the workforce is a very, very good generation indeed. We've expanded the number of internship programs – you might think we've stopped the internship program after that conversation, but we've expanded it to 1,600. We've also expanded our participation in leadership development programs.
So we hire about 13,000 people a year in our company. About 2,100 of those hires are recent college graduates. We take the top 20 percent of that class and we induct them into a series of very formal leadership development experiences that have classes and mandatory rotational assignments – because we think it's essential that you see the company. I think one of the problems with our company has been we lived in stovepipes for too long. You need to see the breadth and depth of the company, not just so you can be a better leader and understand the business but also to understand yourself. It gets foundational, knowing who you are and what you like and what really excites you. And when you find out what really excites you, you're a far more fulfilled professional and a more productive executive.
We require mentoring, but mentoring in both directions. So the newer employees have senior company people who provide mentorships for them. But they also have to adopt a senior person because, as with the vacation discussion, you learn a lot through the eyes of others who are entering the workforce, bringing new ideas and new energy. And then we support them in their pursuit of an advanced degree, as well.
Similar to the vacation policy, we were asked to consider more flexible hours, which we do because so many employees were talking about a desire to participate in childcare or caring for aging parents. And certainly with the passage of each year, I'm all for caring for aging parents. Let me give you a note on technology – one other thought. If you're in an enterprise and you want to hire the best talent and retain that talent and you're not providing an information technology suite, a communication suite, a suite of tools and capabilities that’s at least as good as the “Terp moms and dads” provide in the dorm room – you are not going to attract this talent and you are not going to keep this talent.
So we had to reexamine some resource allocations and put a little more money in the capital budget to assure we had the infrastructure that allowed this generation that's entering the workplace to be very productive. Because I assure you a good technology day for me is when I can get the photocopier to work. That is not where they live. And we've really had to pay attention to that aspect of the environment.
We also know that the nature of the workforce that we have is fundamentally shifting. Today talent is much more multi-ethnic, multi-racial, multi-gender, multi-generational, as I mentioned, and we're better and stronger for this. Lockheed Martin, if it is anything, it is a systems integrator of very complex projects. And it's absolutely critical when you're dealing with those levels of complexity and systems that you look at the challenges in as full a measure as is possible at the outset. The very best way to do that is to start with a highly diversified set of perspectives.
Probably the best illustration I've ever heard of this came from my predecessor, Norm Augustine, who was chairman and CEO before me, talking about the space shuttle program early on in its development. There was a need to get weight out of this vehicle. For those of you who work in this industry, getting weight out of a spacecraft is a delicate and expensive thing.
There were many gray beards around the tables for many days, trying to figure it out. Do you change the structure? Do you change the propulsion system? Do you take out redundant avionics? All of which would have had critical mission impacts. From the back of the room there was a young voice – probably snuck in the room when you think about it – who made this observation: “Why don't you just stop painting the big expendable fuel tank that lasts for nine minutes and then we throw it into the ocean and go fish it out and refurbish it? Why don't we stop painting that?”
The short version of that story is that paint weighed about 800 pounds and was a gold mine because 800 pounds were converted into payload rather than paint. Plus, you didn't have the labor it took to paint the fuel tank or the adverse environmental circumstances of using epoxy-based, space-hardware-qualified paint in the first place. And that didn't come from the systems engineers around the table. It came from a person with a fundamentally different perspective.
So in our company diversity isn't about numbers or a quota. It's a philosophy where we look to include individuals who have had different experiences and different points of view and to make sure those points of views are valued because we think when you bring together disparate voices who have a common objective and shared values, you're likely to get the very best level of innovation.
We know we need to tap new talent pools, seek out more women and minorities, and reach down into schools and encourage the rising generation. I'll say this in the alternative – if you work in a company today that rejects the notion that there is real opportunity and real value and advantage in diversity, I want you as a competitor.
We also recognize that leadership and management are not the same thing. Complex organizations do need both expressions of this professionalism but they are absolutely not the same. Management in our view is about dealing with complexity – lots of moving parts. It's a special gift to have all the moving parts moving in the same direction at the same time to accomplish complex tasks. We know this very well.
But leadership is more about preparing the organization for change and showing the way. When I work with our classes on strategic leadership – and I do this often – they have a great interest in understanding how they can become more effective strategic leaders in the company. I tell them it's very simple. They only have to master three tasks, really – the out-of-body experience, time travel and the artistry of a televangelist. And here's why.
If you are serious about examining how the organization has to change, you have to get out of yourself and you have to take yourself out of the company and you have to look back with an objective rigor that is blistering. You have to look at your strengths and your weaknesses, the challenges and opportunities. You really have to understand who you are and why. Then you have to move yourself as far as you possibly can into the future.
In our case, that's pretty far because you'd like to align it with your product cycles or your development cycles. And we have products that last 30 and 40 and 50 years and that's not an exaggeration. So you need to try and look out a half a century and think: What will be the core competencies? What will be the state of the world? What will be the challenges and opportunities then?
You have to bring yourself back – come back inside the company – and then persuade a huge number of professionals who have been enormously successful in doing exactly what they have been doing, the way they have been doing it that brought them to this state of their professional and executive lives, where their esteem, identity, compensation, rank and position have all been built on this, and essentially tell them to stop doing that and start doing something else because the something else is going to be more valued at a future time.
If you want to take on personal challenges, I'd ask you to consider this one because it's going to rank very high for you. Despite the demands we face, we're sure that when you have the best talent, you have to have the best leadership – leaders who not only get results but demonstrate the right behaviors in the process. We call a program to examine not only performance but behavior Full Spectrum Leadership. It has five principle components. It is the architectural core and spiritual center of our leadership development program, and we describe it to our leaders as a need to immerse ourselves – all of us, including me and others – in a program where we can examine the solution of five simultaneous challenges that leaders are going to face.
The first is shaping the future – that's the out-of-body time travel I mentioned – because we know we need creative thinkers. We want intrepid explorers. We want people who can take risks – who take the initiative to develop new products, develop new markets, and importantly to me, to leverage our traditional strengths in new ways because we are a company of considerable resource. They have to prepare the company for change and drive that change forward. And we spend a lot of time exercising the major muscle groups for this leadership community.
We also recognize that leaders must build effective relationships. It's true that our company has breathtaking technology. We're very proud of that technology. We invest a great deal of resources in developing it. But we're a people business. And, in fact, all businesses are people businesses because without human interaction, technology really doesn't take you very far.
We're also a long cycle business. In other words, we're not transactionally oriented so that we see you in the morning and by lunchtime we're gone. We're in this business for a long time and we're going to be here for a long time. So we feel it's absolutely essential for leaders to have good relationships inside the company and also with constituents outside the company. It helps build trust. And for us trust is one of the cornerstones of leadership.
Additionally, not much happens if leaders don't energize the team. And that means we want our leaders to focus on fostering environments where people can really excel – as I mentioned, where diversity is really valued. Where we celebrate lifelong learning and reward and recognize and celebrate achievements very openly, and ensure that people can meet both personal as well as professional aspirations.
The purpose of leadership in our view is not to create followers. It's to create more leaders. And those leaders must get results. We're a business. We have metrics. We have investors who expect returns. We have customers who expect results. Many of our customers go into harm’s way. As a particularly higher calling, we have to be on our best game or they have a very bad day when they use the equipment that we build. So we know we have to meet our commitments.
And finally, we want leaders who model personal excellence, integrity, and accountability. We believe this is foundational to all the other initiatives that we have, and we ask leaders to lead by example, to set high standards, to inspire trust and confidence, and be very authentic in their beliefs and their convictions and their behaviors.
We've invested hundreds of millions of dollars in these programs and in a new Center for Leadership Excellence. The faculty here participates in these leadership development programs, for which I'm very grateful. And we'll continue to make investments here to ensure that we're going to meet the long-term demands and challenges of the business.
It's very gratifying for me to know completely that leadership potential does reside in every individual. And I can say that without any reservation – that the pool of requisite qualities is not the unique endowment of just a few, because leadership for us is not optional. When the mantle is passed to each of us, we're either going to embrace it fully or we're not. As leaders, we either succeed or fail in a singular moment. And that means you've got to rise to meet the challenges – invest yourself fully, make a contribution and favorably influence the outcome. And if you don't, the whole enterprise suffers the consequences with that failure.
Each of us determines the quality of our leadership each day. Thankfully, we know these skills can be developed. They can be enhanced. And that's why we're committed to our leadership development program. That's why we're excited and grateful about the prospects for the CLIC Program here because we think it's timely and focused and spot on.
Let me give you a final thought before we open the floor for discussion. I think that organizations that want to thrive in an era of constant change must find a way to connect employees to a mission and purpose greater than themselves. I've talked to hundreds of thousands of employees over the years and there is a great hunger to be associated with principles and goals and issues bigger than the quarterly results.
I think that tomorrow's great companies are not only going to do well but they're going to do good – good in our communities and good for our planet. And even though we're very privileged to work on some of the world's most exciting programs and projects like supporting our troops or exploring the universe or tracing the cutting edge of cyber security, we want projects like this to attract the talent to the company. Like the space age attracted me and my generation to the company. But we're also determined to be a place that people are proud to be a part of – a place that is powered by innovation and guided by integrity, a place that believes in giving back and recognizes that we're very privileged to be in the leadership community of this enterprise. And part of that responsibility is service to others.
We want to build a culture of leadership on traditional values like honor, courage, service, and sacrifice, because these are values that technology will never replace and values that will always serve as a true north in any state of change. And that's what we entrust to our leadership community in our company.
You've been very kind with your attention. We do have an opportunity for questions if you yell at me – which is an experience I'm quite familiar with. We'll make sure everybody hears the question or the comment and I guess we have a few minutes that we can engage in conversation, which is always the fun part. Thanks for your time.