Northrop realigns, cuts costs to improve performance

Northrop Grumman approach to a tighter federal market includes realignment, new leaders and a focus on its four pillars of expertise.

Amid what chairman, president and CEO Wes Bush has bluntly termed federal budget “turmoil,” Northrop Grumman Corp. is putting a laser beam on basics: realigning its portfolio to focus on crucial customer requirements, ensuring robust program performance and using innovation to propel more affordable products and services for customers.

On a broad level, the company is aligning its business sectors to better concentrate on its four pillars of expertise—C4ISR, cybersecurity, unmanned systems and logistics and modernization. “In terms of the global security needs of our nation and our allies, we believe each of those areas will continue to play a vital role,” said Randy Belote, Northrop Grumman’s vice president of strategic communications.

For 2013, the company rankes No. 2 on the Washington Technology Top 100 with $8.6 billion in prime contracts. 

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More specifically, Northrop Grumman is streamlining its business to drive affordability, innovation and cost-competitiveness. To consolidate operations and cut costs, the company recently designated five “centers of design and integration excellence” to support the company’s Aerospace Systems sector, which includes its manned aircraft, unmanned systems and electronic-attack business.

Among key realignment moves, two programs at the company’s Bethpage, N.Y., facility, aircraft design and work on the MQ-4C Triton, a Navy high altitude surveillance aircraft, will relocate to the Manned Aircraft Design Center of Excellence and the Unmanned System Center of Excellence in Melbourne, Fla., and San Diego, Calif., respectively. Meanwhile, a downsized Bethpage facility will host the Electronic Attack Center of Excellence, which includes technologies such as radar jamming and cybersecurity.

“This [centers of excellence] approach allows  us to preserve knowledge and critical skills across a changing program base, consolidate facility space where appropriate and leverage our enterprise-wide capacity in the most efficient and cost effective manner for our customers,” Belote said.

As part of its long-term cost-cutting measures, Northrop Grumman will close its Dominguez Hills, Calif., facility, which supports C4I networked communications programs in the company’s Information Systems division.

In a recent conference call to discuss Northrop Grumman’s 2013 first-quarter earnings results, Bush asserted that the company’s efforts to lower costs have paid off. Although the company’s sales for the quarter declined by about $100 million, or 1.5 percent, earnings per share increased 4 percent—“solid results,” according to Bush.

However, sales for Northrop Grumman’s short-cycle Information Systems and Technical Services divisions declined by about $200 million, reflecting “pervasive budget uncertainty” in the government market and “top-line pressure on our short-cycle business,” Bush said.

Nonetheless, despite the uncertain and constrained budget environment, Northrop Grumman hasn’t seen its government customers’ missions change, he said. And demand for information technology that supports those missions is rising, which bodes well for the Information Systems sector.

“Fundamentally, there continues to be a need throughout the federal government for IT-related services and capabilities, whether it is in health IT, command and control systems, missile defense, enterprise IT systems, homeland security, intelligence community support, C4ISR or cybersecurity,” Belote said. “We are focused on using the skills and knowledge of our employees to generate innovative solutions that increase affordability for our customers.”

In particular, as a major provider of cybersecurity services, Northrop Grumman is witnessing increased demand for cybersecurity throughout the federal government and internationally, he added.

At the beginning of 2013, Kathy Warden, previously vice president and general manager of the cyber intelligence division in the Information Systems sector, became the head of Information Systems.

“Kathy was one of the proven group of leaders from within our company who took over in January,” Belote said. “They possess outstanding leadership skills and broad industry expertise. We look forward to continued strong performance from Information Systems under Kathy’s leadership.”

In the near term, Northrop Grumman leaders and their federal customers are dealing with the impact of what Bush called the “significant overhangs” of the sequestration cut and restricted continuing resolution spending.

“Most major contract negotiations are taking longer due to numerous issues our customers have to address in today’s environment,” Bush said. “Our customers are in the process of making the programmatic decisions necessary to comply with the reduced budget levels.”

Northrop Grumman officials are confident that the company can weather troubled and uncertain times for federal spending. Indeed, Northrop Grumman’s leadership had the prescience to position the company for a changing environment well before sequestration, according to Belote.

“Before sequestration, some three to four years ago, we began positioning the company for a changing environment, with reduced customer spending,” he said. “For example, in terms of reducing our cost structure, from 2008 to 2012 we reduced our head count by 17 percent and our facilities footprint by approximately 12 percent.”

Overall, officials expect more opportunities for growth across the company’s portfolio, They also discern significant prospects for new international business--a key element of Northrop Grumman’s expansion plans, Belote said.

“We have a range of industry-leading capabilities available for international markets and already offer products and services to customers in 25 nations,” he said.