{"id":2606,"date":"2015-12-07T20:36:01","date_gmt":"2015-12-08T01:36:01","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/orbital-sciences-you-probably-shouldnt-outsource-rocket-science-if-youre-selling-rockets\/"},"modified":"2015-12-07T20:44:40","modified_gmt":"2015-12-08T01:44:40","slug":"orbital-sciences-you-probably-shouldnt-outsource-rocket-science-if-youre-selling-rockets","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/orbital-sciences-you-probably-shouldnt-outsource-rocket-science-if-youre-selling-rockets\/","title":{"rendered":"Orbital Sciences: You probably shouldn\u2019t outsource rocket science if you\u2019re selling rockets"},"content":{"rendered":"

In February this year, Orbital Sciences Corporation merged with industry peer ATK to form Orbital ATK. The deal was hailed as a win-win for both as \u201cATK looks to bolster its aerospace business and Orbital Sciences hopes to boost the scale of its existing operations as well as gain a foothold in the defense sector\u201d1<\/sup>. More so, the merger will more than likely help realign Orbital\u2019s business with its roots and save it from becoming irrelevant.<\/p>\n

The Beginnings\u2026<\/strong><\/p>\n

Orbital Sciences was founded in 1982 by three 性视界 Business School classmates – David W. Thompson, Bruce Ferguson and Scott Webster1<\/sup>. Its business was and continues to be developing, building and selling aerospace systems to the government. They secured their first contract in 1985, with NASA, for delivery of a several Transfer Orbital Stage (TOS) vehicles3<\/sup>. The low-cost TOS was designed to sit inside the Space Shuttle Payload Bay where it would be removed in space by astronauts and then launched with a payload (see images below).<\/p>\n

\"main\"<\/a>Left:<\/strong> TOS being erected from Shuttle Payload Bay4<\/sup>; Right:<\/strong> TOS after jettison from Shuttle Payload Bay5<\/sup><\/p>\n

Orbital only sold two TOS systems to the government. Success or failure of TOS project aside, the impact that first endeavor had on the foundations of Orbital\u2019s operating model in the decades to follow was profound. TOS was largely developed out-of-house by Martin Marietta6<\/sup>, whom had at the time just successfully emerged from a bloody hostile takeover battle and was looking for growth7<\/sup>. The Orbital value-add in the creation of TOS would largely be systems engineering \u2013 the Orbital bread and butter. Specifically, Orbital would take the pieces developed by Martin Marietta and other subsystem vendors and ensure, when all assembled, the sum of the parts worked.<\/p>\n

Fast Forward\u2026<\/strong><\/p>\n

After TOS, Orbital Sciences would go on to produce satellites and Pegasus<\/em>, its first rocket (which used rocket motors designed by Hercules Aerospace, now ATK)8<\/sup>, and go public on the NASDAQ stock exchange9<\/sup>. This rocket would be the basis of several more to come \u2013 the latest of which won a $1.9B contract to ferry supplies to the International Space Station10<\/sup>. The Orbital Sciences rocket family, mainly small- and medium-lift rockets, would operate virtually competition-free for two decades.<\/p>\n

\"main2\"<\/a>Above:<\/strong> Orbital Profit Margin vs. other aerospace companies11<\/sup><\/p>\n

Even with its space and launch units comprising most of the firm\u2019s revenue, it achieved margins similar to more vertically integrated and better diversified firms like ATK, Boeing and Lockheed Martin (see chart above). The Orbital Sciences model \u2013 leveraging its mastery of systems engineering with extreme \u201cmake vs. buy\u201d decisions \u2013 was a sure winner.<\/p>\n

KaBlam!<\/strong><\/p>\n

Orbital Sciences leveraged its ability in systems engineering successfully for quite a while. In the early 2000\u2019s, NASA funded an effort to develop a new rocket system which would ferry supplies to the International Space Station10<\/sup>. Orbital Sciences undoubtedly saw this as an opportunity to expand its foothold in the launch industry. They would build off the heritage from previous rockets but utilize a liquid rocket engine \u2013 something they had only limited experience with13<\/sup>. This liquid-fuel based engine, named RD-180, would be sourced from the Ukraine14<\/sup>. During the Cold War, Soviet Russia produced hundreds of these engines but never used them. The plan was that Orbital Sciences would buy these left-over imported engines from a U.S. subsidiary and integrated them into their rocket \u2013 all at a cost much less than its closest domestic capability15<\/sup>. Orbital Sciences executed this approach and flew three rockets to the ISS. On its fourth flight to the ISS, the rocket blew up about two hundred feet off the launch pad.<\/p>\n