Northrop Grumman disclosed on July 13 that it would consolidate naval shipbuilding operations on the Gulf Coast, and seriously consider exiting the shipbuilding business through a sale or spinoff of its yards. Chief Executive Officer Wes Bush bluntly stated what many people inside the company already knew: naval shipbuilding is not a good fit with Northrop Grumman’s other business lines or future plans. In fact, it has been a chronic drag on Northrop’s financial results since former CEO Kent Kresa backed into being the U.S. Navy’s biggest shipbuilder while trying to build up his company’s defense-electronics offerings a decade ago.
Northrop Grumman executives have grown increasingly exasperated over the years with the uneven performance of their Gulf Coast shipyards, a problem which predated the devastation wrought by Hurricane Katrina in 2005. As a succession of management teams failed to remedy performance problems at the Gulf yards, company leaders began to ask themselves why one of the world’s premier high-tech firms was engaged in the grimy business of naval metal-bending at all. The company’s Newport News shipyard in Virginia generally performs at a higher level of proficiency than the Gulf Coast yards, but it too has seen production issues that seldom arise in the company’s other operations. Those other operations, concentrated in aerospace, electronics and information services, are fundamentally different in character from the shipbuilding sector.
Whatever the ultimate disposition of Northrop Grumman’s shipbuilding assets, yesterday’s bold move once again signals the determination of Wes Bush to transform his enterprise into a more focused, investor-friendly enterprise. Over the last year, the company has streamlined its organization, refined its financial performance metrics, replaced top leaders and announced plans to move the corporate headquarters from Southern California to Northern Virginia. All of these moves, like the decision on shipbuilding, are intended to make the company more responsive to its shareholders and customers. CEO Bush knows he must improve performance to weather the coming downturn in domestic defense demand, but his goal is a bit more ambitious than mere improvement. He wants Northrop Grumman to be the best company in the defense sector, and if that requires getting rid of under-performing people or properties, then that’s what he intends to do. Wes Bush is a man on a mission.
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