How Northrop shifted its IT strategy to stay ahead

Northrop Grumman Corp. saw the writing on the wall long before the recent budget battles and a shift in government priorities. Two years ago, the Los Angeles-based defense contractor started preparing its IT divisions for the future of its biggest customer. And so far, its planning has paid off.

The company posted $10.8 billion in prime IT contracts in 2010, holding its No. 2 spot on the Top 100. And its information systems division, based in McLean, Va., is looking at big contract opportunities in 2011 and 2012 focused on cybersecurity, health care IT and C4ISR.

“Our belief is you’ll continue to have conflicts in the world that require rapid response like oil spills and the earthquake in Japan,” said Linda Mills, corporate vice president and president of Northrop Grumman Information Systems. “Governments will have needs that will be reflected in IDIQ contracts. Those are key areas we see as having high demand going forward.”

The company’s wins have grown in the double digits in the last year, and Mills said she expects that growth will continue as agencies favor these types of contract vehicles more heavily.

She said the division will pursue opportunities in cloud computing, as well as large opportunities, such as Blue Force Tracking on combat vehicles. Northrop Grumman will also partner with Boeing on a re-compete of the Ground-based Midcourse Defense Development and Sustainment contract, which is the Missile Defense Agency’s system for intercepting incoming warheads in space.

Cybersecurity will play a major role in the division’s growth. The company recently won a Navy task-order contract worth potentially $200 million to provide cyberspace operations on the Space and Naval Warfare Systems Center Pacific.

Health IT is also a major driver for the company and the division recently won a contract with a $5 billion ceiling from the Centers for Disease Control and Prevention's Information Management Services. Northrop Grumman was one of 30 companies to be awarded a spot to compete for task orders on this contract.

Two years ago, the company consolidated its two IT-focused divisions and formed Northrop Grumman Information Systems. The move, which involved staff reductions, was meant as a dramatic cost cutting measure. And cost cutting still remains a mission of the company. But while it drives down costs in certain areas, it’s looking at increasing investments in technology and innovation.

“Technology investment is really critical because customers are looking for proven solutions,” Mills said. “We can only do that with a higher level of investment.”

Part of the company’s retooling also involved divesting itself of TASC, which was its system engineering advisory services arm. This 2009 transaction allowed the company to focus more heavily on core services.

Now the company is orchestrating a headquarters move from Los Angeles to Fairview Park Drive in Falls Church, Va., that will be finalized this summer. The company already has 40,000 Northrop Grumman employees based in Maryland, Virginia and Washington, D.C.

Even though it will be closer to its customer, that doesn’t mean Northrop Grumman, like all large government contractors, doesn’t face big challenges as federal spending shifts away from certain segments.

“There will be some areas of government spending that grow faster than others, such as IT, cybersecurity and contracting related to supporting the government in its role as payer and provider of health care,” said Kevin Plexico, vice president of federal information and analytics at Deltek Information Solutions. “Companies will need to find ways to develop business in these faster growth segments to maintain revenue growth.”