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Northrop Grumman’s business challenges

22 July 2010 No Comment

By Helen Kaiao Chang

See original story on SDNN

Wednesday, May 27, 2009

Northrop Grumman’s response to challenges are strategies that San Diego companies can adopt and adapt to their industries.

Northrop’s difficulties have forced it to pay closer attention to the market, think globally and plan for the future.

These challenges include the shrinking economy, a worker shortage, quality control and maintaining a competitive edge.

Defense budget cuts

The first challenge is a shrinking defense industry. President Obama’s defense policies have resulted in spending shifts. On national level, Defense Secretary Robert Gates recently cancelled big-ticket military items, such as F-22 fighter jets and the presidential helicopter.

These cuts do not affect Northrop Grumman directly, but are sending ripples across the industry. Lockheed Martin, which makes F-22s, could slash as many as 100,000 jobs. Boeing, hit by slowing commercial plane orders, slashed 10,000 jobs in early 2009.

Ken Herbert, an aerospace and defense director at Frost and Sullivan, believes the Department of Defense will put “significant pressure” on homeland security spending as well. Northrop Grumman will be “negatively impacted,” he said.

“We’ve got a couple of programs that are possibly on the administration’s hit list,” said John Pettitt, Northrop Grumman’s lead executive in San Diego. This includes the Joint Tactical Radio Program, or Jitters, which is a project with Lockheed Martin. However, it is not done in San Diego and will not affect operations here.

The shipbuilding business has also fluctuated, said Pettitt. “There just isn’t enough money to buy everything war fighters need,” he said. But “we’re not going to give up on programs that we think are absolutely essential to the defense of the United States. We’re going to do what’s available to us legally to keep those programs alive. ”

Still, the company is watching the administration closely. “We like to think we are well-aligned with Obama’s programs,” said Pettitt.

Worker shortage

In San Diego, Northrop Grumman’s biggest business challenges echoes that of other businesses: a shortage of knowledge workers. Its greatest need is for engineers, technicians and project managers.

“Our biggest challenge is recruiting,” said Pettitt. “Not many people want to move to Southern California, and pay the housing costs and the general cost of living.”

Like many other high-tech companies, Northrop Grumman recruits heavily from regional universities. It also invests in programs encouraging university and high school students to pursue engineering and sciences.

But recruiting remains “a challenge,” said Pettitt. “We’re competing with the biotech industry, the U.S. government… and you got to be a U.S. citizen.”

Quality control

Quality control has also emerged as an area of attention. A recently-settled lawsuit with the federal government involving defective parts cost the company $325 million. The settlement involved a company Northrop Grumman acquired, TRW, which knowingly sold defective satellite parts to the federal government.

The settlement was offset by another $325 million settlement, paid by the federal government to Northrop Grumman, for a terminated missile contract. For the company’s bottomline,”the impact is negligible,” said analyst Finnegan.

Still, over the last 10 years since the suit was initiated, the company has beefed up employee and technology investments for quality control, particularly in its unmanned vehicles sector in Rancho Bernardo.

Today, quality control is a high priority for the company. “We’ve taken great lengths (on Global Hawk products)… to implement some of the quality initiatives that we’ve been doing,” said Chris Cool, a vice president in the San Diego aerospace sector.

Maintaining industry lead

A more important challenge for Northrop Grumman is maintaining its industry lead. “It will be competitive — with defense budgets shrinking — to maintain a differentiated position, and alternatively find new opportunities to find top line growth,” said analyst Herbert.

Northrop Grumman’s San Diego lead executive John Pettitt said the overall company is exploring new areas to apply its technology, including clean technology and cyber security.

But in San Diego, the focus will remain on its unmanned vehicles and other existing businesses for the next several years, said Pettitt.

More stories in this series about Northrop Grumman:

Northrop Grumman: A Stealth Path to Growth
Northrop Grumman’s Success Formula
Northrop Grumman’s Economic Impact in San Diego

Follow Helen on Twitter @HelenChang.

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