Reshaping an industry: Lockheed Martin's survival story.

In most industries, the loss of a few percentage points in the market is a severe setback, even a catastrophe. The U.S. defense industry has seen more than 50% of its market disappear, and the companies that make up the industry have faced the need for the equivalent of self-administered surgery with no insurance, no anesthetic, and no assurance of long-term health. In 1995, Martin Marietta and Lockheed combined to form Lockheed Martin. That company has emerged in a most coveted role: survivor. In fact, it has seen its stock price nearly double in less than two years. In this article, CEO Norman Augustine relates the company's experience and offers some difficult-and painful-prescriptions. For example, his first piece of advice: Read the tea leaves. The tremors of change in the defense industry began not when the Soviet Union imploded but when a new term entered the business lexicon: financial engineering. After narrow escapes from takeover attempts, both Martin Marietta and Lockheed learned that forced restructurings signal problems ahead. Companies in turbulent industries need road maps-even when there don't seem to be any roads. And they must seize the opportunities for making large changes that upheaval provides. But companies such as Lockheed Martin can't afford to be distracted by change. It's easier said than done, but managers must stay focused on their business, their customers, and their most important asset: employees. Companies in technology-driven industries must reinvent themselves continually. The bad news is that change requires hard decisions. The good news is that success awaits organizations willing to make those decisions.