Organizational Structure as An Engine for Innovation: Discovering Stealth at Lockheed Martin’s Skunk Works

Abstract

During the Vietnam War, the U.S. lost intolerable numbers of aircraft to the pervasive threat of radar detection and antiaircraft missilery. Striving to regain air supremacy, the Pentagon held a secret competition to build an aircraft that could trump the Soviet’s embattlements. At the time, the aerospace defense industry included five major players: McDonnell Douglas, Rockwell, Hughes Aircraft Company, Northrop, and Lockheed. Each firm boasted an impressive track record of military innovation, but only Lockheed had a Skunk Works, an autonomous rapid-prototyping shop staffed with a cross-functional team of the most talented individuals from across the organization. Although insulated from the affairs of the parent corporation, the Skunk Works faced challenges regarding cost, quality, security, and mandatory compliance with government requirements. In the end, Lockheed Martin’s Skunk Works won the Pentagon contract with its revolutionary subsonic night fighter, the F-117A Nighthawk. What key elements of the skunk works organization structure made Lockheed Martin successful when all others had failed? What is it about Lockheed’s winning skunk works formula that provides the right mix of managerial support and autonomy to create a nurturing entrepreneurial environment?