Huntington Ingalls Industries (HII) is a United States (US) company specializing in building naval ships and defence technology solutions, including autonomous and surveillance systems. The company was established 135 years ago as a shipbuilder, with operations in Virginia and Mississippi. It is currently the largest shipbuilder in the US, employing over 44,000 people (HII, 2022a). The company has since diversified into aerospace and defence (A&D), creating technology solutions for the US Department of Defense (DoD) and its global partners. HII derives its competitive advantage from a focused strategy, related diversification, and a commitment to ethical business practice, social responsibility, and environmental sustainability.
HII’s Generic Strategies
Every company strives to establish and sustain competitive advantage in their markets. According to Porter (1985), firms can position themselves strategically and gain competitive advantage by pursuing a differentiation, cost-leadership, or focus strategy. These are Porter’s generic strategies. Firms that choose a differentiation strategy offer their customers benefits or features lacking in competitors’ products or services. Differentiated products or services are perceived as unique relative to those of competitors. Consequently, firms that pursue a differentiation strategy can charge premium prices for their high-quality and unique products or services.
Conversely, firms with a cost leadership strategy offer their customers the same benefits they seek at a lower cost. Firms can pursue either of the two fundamental generic strategies, differentiation or cost leadership, by focusing on either broad or narrow (niche) markets. Firms specializing in narrow market segments are pursuing a ‘focus’ strategy and can achieve competitive advantage through either low costs (cost focus) or product/service uniqueness (differentiation focus) within those segments.
An analysis of HII’s annual reports indicates that the firm pursues competitive advantage primarily through a ‘differentiation focus’ strategy. The company narrowly specializes in naval shipbuilding and related services, with the US Navy being its primary client. The company claims it is the only shipbuilder currently capable of building, refuelling, and inactivating the US Navy’s nuclear-powered aircraft carriers (HII, 2022b). The company also claims it is currently the only builder of large-deck amphibious assault and expeditionary warfare ships for the US Navy (HII, 2022b). This means the company is highly differentiated and well-positioned to win US Navy contracts.
Although Porter emphasized that firms should focus on a single generic strategy to avoid being stuck in the middle, today’s competitive and dynamic business environments require organizations to be flexible and highly responsive. Depending on the market conditions, pursuing both differentiation and cost-leadership strategies can help firms balance the risks associated with each. HII’s differentiation focus strategy carries potential risks. For instance, the entry of competitors capable of building, refueling, or inactivating the US Navy’s nuclear-powered aircraft carriers at a lower cost would threaten HII’s business and competitive position. Additionally, the US Navy may decide to perform services related to ship maintenance and refueling in-house, adversely affecting its competitive and financial positions. Therefore, HII likely leverages technological innovations to lower production costs and supply its clients with high-quality products and services at a competitive price. The company also leverages its size and scale to offer competitive prices relative to smaller shipyards.
HII’s Diversification Strategy
Firms pursue diversification to reduce business risk, expand growth opportunities, and improve financial performance. Diversification strategies can be broadly classified into related and unrelated/conglomerate. Firms using a related diversification strategy offer new products and services related to existing ones. Contrarily, unrelated/conglomerate diversification entails launching new products/services completely different from the core business (Kennedy, 2020). Specific diversification pathways under the related type are horizontal, vertical, and concentric. Horizontal diversification entails entering new markets or launching new product/service lines directly related to current business activities. Vertical diversification means expanding into other activities along the industry’s value chain, such as taking over the production of raw materials (Kennedy, 2020). Lastly, concentric diversification entails using existing resources, including technology and distribution channels, to market a new or improved product related to current offerings. Options that firms can use to diversify their business include building new stores or locations, e-commerce, franchising, licensing, mergers, acquisitions, and establishing strategic alliances.
HII pursues related diversification, particularly the horizontal pathway. Its original business activity (shipbuilding) and the recent Mission Technologies segment are primarily related to the defense industry, with the DoD being its primary customer across the segments. The Mission Technologies segment offers services and products related to cybersecurity, surveillance, unmanned vehicles, fleet maintenance, and nuclear/hazardous waste management. The shipbuilder’s diversification into engineering, autonomous systems, military training, cybersecurity, surveillance, data analytics, and other technology solutions for the defense industry has involved direct investments, acquisitions, and strategic partnerships.
Notable acquisitions by HII’s Mission Technologies segment include Spatial Integrated Systems’s autonomous technology segment in 2021, Hydroid (Kongsberg’s underwater technology company) in 2020, and Alion Science and Technology in 2021. HII also formed a strategic partnership with Kongsberg Maritime and commenced construction of its Unmanned Systems Center of Excellence in Hampton in 2020 (Gould, 2021). These strategic investments, acquisitions, and partnerships have strengthened HII’s market position as a provider of engineering and technology solutions for the defense industry.
Its shipbuilding business is also diversified horizontally based on product specialization. The Ingalls shipbuilding segment specializes in designing and building non-nuclear naval ships while the Newport News shipbuilding segment specializes in nuclear powered ships and submarines. Overall, HII pursues related diversification, leveraging its experience and competencies in shipbuilding and defense systems to offer products and services that meet the needs of the DoD and similar customers.
HII’s International Moves
Established firms use internationalization strategies to expand globally, accelerate business growth, diversify revenue streams, and improve competitive positioning. Internationalization can be viewed as a market development strategy if a firm enters new international markets using existing products. Firms can also enter new international markets using a diversification strategy, where customized or new product lines are developed for the international markets. The specific internationalization strategies that firms can use to enter foreign markets include exporting, licensing, franchising, joint ventures, strategic partnerships, foreign direct investment (FDI), and E-commerce. A firm’s choice of internationalization strategy to pursue depends on the characteristics of the target foreign markets, the industry, available resources, and risk tolerance.
HII’s core business activities are primarily domestic, as the US Government accounts for almost all of its revenue. The US Navy is its largest client, accounting for about 82% of its total revenue in 2022, 90% in 2021, and 88% in 2020 (HII, 2020b). HII’s Mission Technologies is the only segment that operates and competes in international markets. HII claims on its website that it has technologies and operations in more than 30 countries and delivers defense, civil, and commercial solutions to allied partners globally. This suggests that HII has internationalized its Mission Technologies segment through strategic partnerships in foreign markets. The company also has a subsidiary in Australia that operates as a business unit under its Mission Technologies segment. HII Australia is physically headquartered in Canberra, indicating the company also uses FDI as part of its internationalization strategy.
Ethics Policies and Practices
Organizations use codes of conduct, policies, procedures, and guidelines to define behaviors expected of the management, employees, suppliers, and other stakeholders they do business with. HII has a Code of Ethics and Business Conduct document that outlines the company’s core values and commitments to employees, customers, shareholders, community, and suppliers (HII, 2022c). Its core values are responsibility, integrity, respect, safety, engagement, and performance. The Code of Ethics also outlines expectations for employees and managers. HII also has a Supplier Code of Conduct that communicate the company values and expectations to suppliers. Having explicit company values and an Ethics Code of Conduct do not usually translate to ethical behavior.
Organizations need to make the core values and expected behaviors part of company culture. Specific practices firms use to foster a culture of ethics include training employees on the core values, reminders, measuring ethical conduct, setting the tone at the top and the middle, recognizing and rewarding employees who demonstrate company values, and making ethics part of day-to-day business behavior (Epiley & Kumar, 2019). HII demonstrates some of these ethical practices. For instance, the company CEO sets the tone at the top every year with a video message reiterating HII’s values and ethics (HII, 2022c). HII also has an Ethics Program that delivers annual ethics training to all employees (HII, 2022c). Employees are trained on company values, ethical decision-making, and compliance issues.
HII also has an ethics recognition program that recognizes and rewards employees who demonstrate company values in their day-to-day behaviors. Moreover, HII has embedded company values and ethics into employee performance evaluation and senior executive compensation. The company incentivizes ethical behavior by adjusting employee and executive performance ratings based on their conduct during the evaluation year (HII, 2022c). Additionally, HII has an Anti-Corruption Compliance program that assesses its operating locations for corruption-related risks and delivers anti-corruption training to all employees (HII, 2022c). The company enhances communication of its ethics policies, procedures, and practices further using an Ethics and Compliance mobile app available to all employees.
HII’s Social responsibility Practices
Corporate social responsibility (CSR) describes a business model where firms engage in activities that positively impact society and the environment. All organizations have a social responsibility to do what is best not just for their shareholders (i.e. generate profits), but their employees, society, and the environment. Companies that engage in CSR emphasize a triple bottom line (TBL): social (people), environmental (planet), and financial (profits) (Miller, 2020). They measure success not only based on how profitable they are, but their impact on the well-being of communities where they operate and the environment. Socially responsible organizations strive for a just society. Firms express their social responsibility through various activities and strategies, including philanthropy, volunteerism, environmental stewardship, and behaving ethically (e.g. paying employees fairly and fighting child or forced labor) (Stobierski, 2021). A firm’s choice of specific CSR activities depends on its goals, type of business, and needs of the communities served. HII practices some of the CSR activities including charitable investments/philanthropy, volunteerism, and fighting social injustices.
The company has made several charitable investments in education, health, social services, veteran and youth programs, and community empowerment. Charitable investments by HII totalled $8.4 in 2022 (HII, 2022d). About 34% of the funds were invested in education programs, 31% donated to United Way for community empowerment projects, and the rest in health, veterans support, and youth programs among other activities (HII, 2022d). HII contributes to community building further by being the largest employer in the states of Mississippi and Alabama. HII employees volunteer their time, effort, and talents to improve their communities, including helping residents repair homes, fundraising, and participating in local events. Finally, HII claims it makes every effort to source raw materials responsibly, ensuring they do not support conflicts and forced or child labor.
HII’s Environmental Sustainability Practices
Climate change concerns and depleting natural resources demands increased organizational commitment to environmental sustainability. Pursuing environmental sustainability means using natural resources responsibly and conserving them for future generations. Organizations pursue environmental sustainability through several practices, including recycling, reducing greenhouse gas emissions and water consumption, proper waste management, increasing energy efficiency, and offsetting environmental impact through tree planting. A firm’s environmental sustainability plan and selected strategies depends on the nature of their business and impact on the environment.
HII’s value chain impacts the environment in significant ways. The company’s environmental impact begins at the point of material sourcing. The process of extracting raw materials for shipbuilding, such as iron, degrades the environment. Transporting the raw materials to manufacturing sites degrade the environment further by releasing greenhouse gasses to the atmosphere. The manufacturing process releases more greenhouse gasses in addition to consuming significant amounts of energy and water. The shipbuilding process also produces harmful waste and pollutants that must be managed to prevent health issues. The illustration indicates that HII needs a comprehensive sustainability plan that addresses environmental issues in its entire value chain.
An analysis of HII’s sustainability reports confirm its commitment to environmental sustainability. The company has an environmental management system (EMS) that guides the company’s environmental sustainability practices (HII, 2022c). HII’s environmental sustainability efforts and practices primarily center around stopping environmental pollution, reducing greenhouse gas emissions, recycling to reduce waste, and increasing energy and water efficiency. The company has developed energy-efficient propulsion systems with low greenhouse gas emissions. It has recycled several tons of metallic waste and paper, resulting in minimal wastage. The company has also reduced electricity consumption by transitioning to LED lighting for its facilities. HII has also minimized water consumption by transitioning to efficient water-cooling systems (HII, 2022c). The organization should do more to create a cleaner and sustainable value chain. For example, the company could help its suppliers transition to sustainable practices and reduce greenhouse emissions.
Conclusion
HII is highly differentiated and has a narrow scope, focusing on shipbuilding and technology solutions for the defense industry. The company pursues related diversification, leveraging its experience and competencies in shipbuilding and defense systems to offer products and services that meet the needs of the US military and related customers. The company’s recent horizontal diversification into engineering and technology solutions through acquisitions, direct investment, and strategic partnerships has improved its position in the defense industry. Regarding internationalization, HII is largely a domestic company with the US DoD accounting for more than 90% of its revenue. The company can reduce business risk and improve its position further by exploiting the international market for defense technologies. HII demonstrates commitment to ethics, social responsibility, and environmental sustainability through several practices, including ethical training for all employees, philanthropy, volunteerism, increasing energy efficiency, decreasing carbon emissions, and recycling.
References
Epley , N., & Kumar, A. (2019). How to design an ethical organization. Harvard Business Review. https://hbr.org/2019/05/how-to-design-an-ethical-organization
Gould, J. (2021, July 6). Huntington Ingalls to buy Alion Science and Technology for $1.65 billion. Defense News. https://www.defensenews.com/congress/2021/07/06/huntington-ingalls-to-buy-alion-science-and-technology-for-165b/
HII. (2022a). About HII. https://huntingtoningalls.com/who-we-are/#:~:text=About%20HII
HII. (2022b). 2022 Annual report. https://s29.q4cdn.com/772422961/files/doc_financials/2022/ar/HII_2022_Annual-Report.pdf
HII. (2022c). 2022 Sustainability report. https://hii.com/wp-content/uploads/2023/03/HII-2022-Sustainability-Report.pdf
HII. (2022d). 2022 Community report. https://hii.com/wp-content/uploads/2023/04/HII_2022-Community-Report.pdf
Kennedy, R. (2020). 8.3 Diversification. Virginia Tech Publishing. https://pressbooks.lib.vt.edu/strategicmanagement/chapter/8-3-diversification/
Miller, K. (2020, December 8). The triple bottom line: What it is & why it’s important. Harvard Business School . https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. Free Press.
Stobierski, T. (2021, April 8). What is corporate social responsibility? 4 types. Harvard Business School. https://online.hbs.edu/blog/post/types-of-corporate-social-responsibility
write