FORTUNE’s Most Admired Companies 2007 & the Defense Sector
FORTUNE Magazine has released its annual list of America’s Most Admired Companies, and a number of defense-related firms find themselves noted in the data. To quote FORTUNE re: their methodology:
“The Most Admired list is the definitive report card on corporate reputations. Our survey partners at Hay Group started with the FORTUNE 1,000 – the 1,000 largest U.S. companies ranked by revenue – and the top foreign ones operating in the U.S. Hay sorted them by industry and selected the ten largest in each. To create the 63 industry lists, Hay asked executives, directors, and analysts to rate companies in their own industry on eight criteria, from investment value to social responsibility. Only the best are listed as most admired: A company’s score must rank in the top half of its industry survey. Ranks for the rest of the contenders are available online only.”
The criteria evidently managed to completely exclude key global defense & aerospace players with notable US businesses/revenues, including BAE Systems and EADS (which includes Airbus & Eurocopter). This is a major pair of omissions, to say the least. Methodology flaws aside, firms that made the cut in their sectors and do a lot of work in our industry – or were on the receiving end of cutting ratings – included:
Defense-Related Firms & Key Rating Categories:
These categories apply across all industries within FORTUNE’s 2007 survey rankings:
Financial Soundness: No firms in top 10 or bottom 10 overall.
Long-Term Investment: No firms in top 10 or bottom 10 overall.
Innovation: No firms in top 10 or bottom 10 overall.
Management Quality: GE tied for #2 with Kinder Morgan, just behind #1 Proctor & Gamble. No firms in bottom 10.
People Management: GE is #4. No firms in bottom 10 overall.
Social Responsibility: No firms in top 10. Navistar #8 in “Least Admired” across all industries, just behind #9 Lyondell Chemical and #10 Toys R Us.
Quality of Products: No firms in top 10 overall. Navistar #3 in “Least Admired” across all industries, just ahead of #2 – the US Postal Service.
Use of Corporate Assets: No firms in top 10 overall. Navistar #9 in “Least Admired” across all industries, just ahead of #8 Calpine and behind #10 UAL.
Defense & Aerospace Industry
#1 United Technologies. Incldes Pratt & Whitney, Sikorsky as subsidiaries. Overall Score: 7.37
#2 Boeing. Overall Score: 7.33
#3 Lockheed Martin. Overall Score: 6.93
#4 General Dynamics. Overall Score: 6.72
#4 Northrop Grumman. Overall Score: 6.72
#4 Raytheon. Overall Score: 6.72. They were #8 last year, and showed marked in social responsibility, quality of products/services, innovation, talent development and use of corporate assets rankings. Corporate feature. Interestingly, FORBES’ 10th annual survey of the 400 Best Big Companies named Raytheon the Best Managed Company in the Aerospace & Defense industry, but FORTUNE’s 2007 Most Admired Companies survey rating places Raytheon 7/10 in Quality of Management.
As noted above, the criteria evidently managed to completely exclude key global players with notable US businesses/revenues. Qualifying companies that finished out of the “Most Admired” ranking inlcuded:
#7 Textron. Overall Score: 6.52
#8 Honeywell International. Overall Score: 6.17
#9 Goodrich. Overall Score: 5.91
#10: L-3 Communications. Overall Score: 5.69
Other Firms Involved in the Industry Who Made the Cut:
- CH2M Hill. Listed under Engineering, Construction, they compete for and receive contracts for a number of major outsourced engineering contracts, and can be considered a Halliburton competitor within this industry. Ranked #3 in its industry sector with an overall score of 6.78, and a #1 industry ranking in innovation.
- Con-Way. #1 in the Transportation & Logistics sector, with a overall score of 7.51. They won the US military’s DTCI contract for outsourced logistics in 2007. Note that if UPS (8.26, #16 overall) or FedEx (8.53, #6 overall) had been included in this sector instead of the 5-firm Delivery sector, Con-Way would have been 3rd.
- General Electric. FORTUNE’s #1 Most Admired Company in 2007, listed under the Electronics sector. Its overall score of 8.04 made it #1 in its industry – but that score is only 13th in the survey. How is this possible? It all comes down to methodology:
bq. “To create the top 20, an overall list of Most Admired Companies, Hay Group asked the 3,322 executives, directors, and securities analysts who had responded to the industry surveys to select the ten companies they admired most. They chose from a list of companies that ranked in the top 25% in last year’s survey, plus those that finished in the top 20% of their industry. Anyone could vote for any company in any industry. The difference in voting rolls is why some results can seem anomalous; for example, Southwest Airlines is one of the top five Most Admired Companies but is second in its own industry. [DID: behind Continental, who is not in the top 20]“
- IBM. Inexplicably, they are still listed in the Computers category – not even in Computer Software, let alone IT Services. They were #1 in that category, with an overall score of 7.46 that would also have placed them #1 in IT Services.
- SAIC. Ranked #4/9 within the IT Services category, overall score 4.99. Accenture (7.38), Perot Systems (6.85), and EDS (5.41) finished ahead of them; IBM was not on this list.
Firms Involved in the Industry Who Received Cutting Ratings:
- Navistar. Ranked 10th/10 within the Motor Vehicles sector in every single category, and its 3.90 overall score made it #3 on the overall “Least Admired” list within qualifying firms across all industries. They are currently the leading producer of MRAP blast-resistant vehicles for the US military. Key competitor Oshkosh did not make FORTUNE’s list to be rated.
- Computer Sciences Corp. Ranked #8/9 across most categories within the IT Services industry (Unisys was #9 across the board). A #4 ranking on Social Responsibility helped elevate their overall score to 4.55.
- L-3 Communications. Rated 10th/10 among eligible companies in Aerospace and Defense, with a #9/10 ranking in “innovation” (Goodrich was #10) and 10th/10 ranking everywhere else. Still, its 5.69 overall score keeps it well away from the overall “least admired” list.
- Halliburton, which no longer includes former subsidiary KBR as of April 2007. Has done a lot of defense construction and logistics services work within the USA, and on the front lines – activities whose execution has placed the firm under sharp media scrutiny. Halliburton was placed in the Oil & Gas Equipment, Services sector, which is rather limiting given their breadth of activities but is their key business line following their divestment of KBR. They rank 9th/10 in that sector, and a cutting 10th/10 for Quality of management and Use of corporate assets. On the other hand, their overall score of 5.97 is higher than many others.
- URS. Finished 6th/10 in the Engineering, Construction sector to put them just out of the running, with an overall score of 5.97. Given an 8th/10 rating in Quality of products/services. URS competes for and receive contracts for a number of military construction and engineering contracts. The firm was tied to Sen. Diane Feinstein [D-CA], who held a prominent position on the Senate’s Military Construction Appropriations subcommittee (MILCON) from 2001 through the end of 2005 – during which time, URS’ military contracts skyrocketed in value.
FORTUNE MAC: Top 10 in Overall Scores (Scored Within Sectors)
8.70 CHS – Wholesalers: Food and Grocery
8.53 FedEx – Delivery
8.48 Procter & Gamble – Household and Personal Products
8.26 United Parcel Service – Delivery
8.23 IAC/InterActiveCorp – Internet Services and Retailing
8.10 Kinder Morgan Energy Partners – Pipelines
8.10 Network Appliance – Computer Peripherals
8.09 Exxon Mobil – Petroleum Refining
8.09 Starbucks – Food Services
8.08 Herman Miller – Furniture
Top 10 in Follow-on Survey for FORTUNE’s Top 20
1. General Electric
3. Toyota Motor
4. Berkshire Hathaway
5. Southwest Airlines
9. Johnson & Johnson
10. Procter & Gamble