Northrop Grumman's New Headquarters Is Just One Step In A Corporate Transformation
As I predicted in January, Northrop Grumman has decided to move its corporate headquarters to Northern Virginia. The most likely location is the same office park where General Dynamics headquarters sits astride the Capitol Beltway near Tysons Corner, but at least one other site in that vicinity is still under active consideration. Thus, Northrop Grumman's new nerve center will probably be located only a short distance from the SAIC headquarters complex on Route 7, cementing the reputation of the Tysons Corner area as the hub of the military-industrial complex. It's a fitting locale for defense contractors in the information age, since it is also the place where the internet originated back in the 1960s.
Northrop Grumman's move to the Washington area was long overdue. A third of its workers are already here, and it is probably the largest private-sector employer in the state of Virginia. More importantly, its only real customer, the federal government, is here. Trying to shape that customer's thinking from 3,000 miles away is a losing proposition when most of your competitors have long since located to D.C. and its environs. So newly-minted CEO Wes Bush made the rational choice and decided to move his staff -- demonstrating in the early days of his tenure that he will do whatever is necessary to position his company for success in the years ahead. Defense-industry prospects are dimming due to the government's yawning deficits, competing domestic priorities and the winding down of what used to be called "the global war on terror." Bush saw that Northrop Grumman will need every advantage it can muster, including getting as close to the customer as possible.
But a change of venue for the corporate staff is only the first step in Bush's plan to transform his enterprise. Northrop Grumman is an extraordinary concentration of technological expertise in aerospace, electronics and information systems, but it hasn't managed to distinguish its offerings from those of companies such as Lockheed Martin and Raytheon during the recent surge in military spending. One reason why is that the defense industry has consolidated down to a handful of military conglomerates that are all engaged in the same product categories. In any other country, Northrop would be the national champion for defense products, but in America -- which currently accounts for nearly half of global military spending -- it looks too much like several other companies to stand out. The image problem is made worse by the fact that many of the product areas where it really shines are secret, and the one area where it does not -- shipbuilding -- has dragged down the financial results of the whole enterprise.
The company recently revised its financial metrics to emphasize the efficiency with which capital is deployed over mere revenue growth. Shortly thereafter it decided not to participate in the Air Force's $40 billion competition for a next-generation tanker, sending a strong message to the Street that it really is serious about raising the bar on what sorts of opportunities it will pursue. Further steps are likely during Wes Bush's tenure to reshape the company's portfolio of businesses and generate consistently improving results for shareholders. General Dynamics, its main competitor in the shipbuilding space and likely neighbor in Northern Virginia, has set an example for the whole sector of steady financial performance that pressures every other player to run a tight ship and not surprise investors. As the former Chief Financial Officer of his company, Wes Bush understands how to run a technology enterprise by the numbers, and moving the corporate staff to Virginia will help him to refocus Northrop Grumman's culture on predictable, superior financial performance -- the main measure of merit applied to all successful companies in America.