Analysis of Northrop Grumman

1 If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle. - Sun Tzu On dispersive ground, therefore, fight not. On facile ground, halt not. On contentious ground, attack not. On open ground, do not try to block the enemy's way. On the ground of intersecting highways, join hands with your allies. On serious ground, gather in plunder. In difficult ground, keep steadily on the march. On hemmed-in ground, resort to stratagem. On desperate ground, fight. - Sun Tzu Executive Summary This is a case analysis of Northrop Grumman, a U.S. Aerospace & Defense Company. The purpose of this case analysis is to conduct an in-depth analysis of Northrop Grumman by analyzing it from an internal (Know Thy Self), external (Know Thy Ground), and competitive prospective (Know Thy Enemy). The analysis will be followed by a conclusion and goals & strategy recommendations. The internal analysis is an analysis that focuses on the factors that make Northrop Grumman function as the company that it is: Operations, Human Resources, Marketing and Finance. The external analysis is an analysis that focuses on the outsides factors that effective Northrop Grumman operating as an efficient and effective global leader in the Aerospace and Defense Technology Industry: Demographics, Economics, Technological, Legal/Political, International and Social. The competitive analysis is an analysis of Northrop Grumman in comparison to its competitors by utilizing Porter’s Five Forces Factors: Threats of new entrants, Threats of

Transcript of Analysis of Northrop Grumman

Page 1: Analysis of Northrop Grumman


If you know the enemy and know yourself, you need not fear the result of a hundred battles. If

you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If

you know neither the enemy nor yourself, you will succumb in every battle.

- Sun Tzu

On dispersive ground, therefore, fight not. On facile ground, halt not. On contentious ground,

attack not. On open ground, do not try to block the enemy's way. On the ground of intersecting

highways, join hands with your allies. On serious ground, gather in plunder. In difficult ground,

keep steadily on the march. On hemmed-in ground, resort to stratagem. On desperate ground,


- Sun Tzu

Executive Summary

This is a case analysis of Northrop Grumman, a U.S. Aerospace & Defense Company. The

purpose of this case analysis is to conduct an in-depth analysis of Northrop Grumman by

analyzing it from an internal (Know Thy Self), external (Know Thy Ground), and competitive

prospective (Know Thy Enemy). The analysis will be followed by a conclusion and goals &

strategy recommendations.

The internal analysis is an analysis that focuses on the factors that make Northrop Grumman

function as the company that it is: Operations, Human Resources, Marketing and Finance. The

external analysis is an analysis that focuses on the outsides factors that effective Northrop

Grumman operating as an efficient and effective global leader in the Aerospace and Defense

Technology Industry: Demographics, Economics, Technological, Legal/Political, International

and Social. The competitive analysis is an analysis of Northrop Grumman in comparison to its

competitors by utilizing Porter’s Five Forces Factors: Threats of new entrants, Threats of

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substitutes, Bargaining power of customers, Bargaining power of suppliers, and Competitors

rivalry within an industry. The conclusion summarizes the findings of the case analysis in terms

of: Core Competencies, Distinctive Competitive Advantage, Driving Forces and Key Success

Factors. The Goals and Strategies Recommendations are the goals and strategies that will be

proposed to Northrop Grumman in order to enhance its continued growth and business

performance as a leader in the Aerospace & Defense Technology Industry.

Business Description

Northrop Grumman Corporation is an American Aerospace and Defense Technology company

that was originally formed in California in 1939 as the Northrop Corporation then reincorporated

in Delaware in 1985. In 1994, Northrop Aircraft merged with Grumman Aerospace to create the

company Northrop Grumman. Both companies were previously established in the airplane

manufacturing industry, and Grumman was famous for building the Apollo Lunar Module. The

new company acquired Westinghouse Electronic Systems in 1996, a major manufacturer of radar

systems. Logicon, a defense computer contractor, was added in 1997. Previously, Logicon had

acquired Geodynamics Corporation in March 1996 and Syscon Corporation in February 1995.

The company was the fourth-largest defense contractor in the world as of 2010 and the largest

builder of naval vessels. Northrop Grumman employs over 75,000 people worldwide. Its 2007

annual revenue is reported at US$32 billion. Northrop Grumman ranks #61 on the 2010 Fortune

500 list of U.S. industrial companies. It has its headquarters in West Falls Church,

unincorporated Fairfax County, Virginia, in the Falls Church area.

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Our mission is to be at the forefront of technology and innovation, delivering superior capability

in tandem with maximized cost efficiencies. The security solutions we provide help secure

freedoms for our nation as well as those of our allies. Squarely meeting our obligations, fiscally

and technologically, isn't just a business goal, but a moral imperative. To that end, as we evolve

as a company, the responsibility we feel for our country and the citizens and troops we help

support grows with us.


To be the most trusted provider of systems and technologies that ensures the security and

freedom of our nation and its allies. As the technology leader, we will define the future of

defense from undersea to outer space, and in cyberspace.


We, the women and men of NORTHROP GRUMMAN, are guided by the following Values.

They describe our company as we want it to be. We want our decisions and actions to

demonstrate these Values. We believe that putting our Values into practice creates long-term

benefits for shareholders, customers, employees, suppliers, and the communities we serve.

We take responsibility for QUALITY

We deliver CUSTOMER satisfaction

We provide LEADERSHIP as a company and as individuals

We act with INTEGRITY in all we do

We value Northrop Grumman PEOPLE

We regard our SUPPLIERS as essential team members

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Internal Analysis of Northrop Grumman


1. Location & Facilities

Northrop Grumman’s principal corporate headquarters is located in Falls Church, Virginia and

its United Kingdom Headquarters in London, England. The Northrop Grumman’s corporate

headquarters was previously in Los Angeles, California, however, upon assuming the mantle of

CEO on January 2010, Wes Bush moved the company to Northern Virginia so executives could

be closer to their federal customers (FORBES, 2011). In addition, Northrop Grumman’s four

business sector headquarters (Aerospace Systems, Electronics Systems, Information Systems and

Technical Services) are located in Redondo Beach, California; Linthicum, Maryland; McLean,

Virginia; and Herndon, Virginia respectively with smaller corporate offices throughout the

United States.

Northrop Grumman maintains Aerospace Systems facilities in Carson, El Segundo, Manhattan

Beach, Mojave, Palmdale, San Diego, CA; Melbourne and St. Augustine, FL; Bethpage, NY;

and Clearfield, UT.

Electronics Systems facilities in Azusa, Sunnyvale and Woodland Hills, CA; Norwalk, CT;

Apopka, FL; Rolling Meadows, IL; Annapolis, Elkridge, Halethorpe, Sykesville, MD;

Williamsville, NY; Cincinnati, OH; Salt Lake City, UT; Charlottesville, VA with locations

outside in France, Germany, Italy and the United Kingdom.

Information Systems facilities in Huntsville, AL; Carson, McClellan, Redondo Beach, San

Diego, and San Jose, CA; Aurora and Colorado Springs CO; Washington D.C.; Annapolis

Junction and Columbia, MD; Bellevue, NE; and Chantilly, Chester, Dahlgren, Fairfax, Herndon,

McLean, and Reston, VA.

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Technical Services facilities in Sierra Vista, AZ, Warner Robins, GA; Lake Charles, LA.

Shipbuilding facilities in San Diego, CA; Avondale, LA; Gulfport and Pascagoula, MS; and

Hampton, Newport News, and Suffolk, VA.

Internationally, Northrop Grumman has a global presence in Europe, Middle East & Africa, and

the Asian Pacific region.

2. Functional Chart of Organization

Northrop Grumman is a centralized organizational structure composed of three main bodies of

leadership: a board of directors, corporate policy council and elected officers. In addition,

Northrop Grumman possesses corporate lead executives who are responsible for the customers-

focused business strategies throughout the continental United States and abroad, as well as,

corporate liaisons for Northrop Grumman business in their region.

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There are currently 12 members on the Northrop Grumman board of directors:

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The Northrop Grumman Corporate Policy Council assists the Chief Executive Officer and

President by serving as management’s key deliberative body for all major policy-level problems,

issues, and opportunities facing the company. The council consists of 12 members:

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Northrop Grumman’s elected officers are the corporation’s officer and are composed of a Chief

Executive Officer, President and 15 Vice presidents responsible for each department of Northrop


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3. Capacity

Northrop Grumman is a leading global security company providing innovative solutions, systems

and products for its customers from its five business sectors: Aerospace systems, Electronic

systems, Information systems and Technical services, and Shipbuilding.

The Aerospace systems business sector located in Redondo Beach, California is an

approximately $10 billion business whose approximately 24,000 employees comprise a premier

provider of manned and unmanned aircraft, space systems, missile systems and advanced

technologies critical to our nation’s security. Their Aerospace sector possesses the capacity to


Large Scale Systems Integration C4ISR Unmanned Systems

Airborne Ground Surveillance / C2 Naval BMC2 Global / Theater Strike Systems

Electronic Combat Operations ISR Satellite Systems Missile Defense Satellite Systems

MILSATCOM Systems Strategic Space Systems

Directed Energy Systems Environmental & Space Science Satellite Systems

The acquisitions of Litton Industries Inc., Newport News Inc., and TRW Inc. made Northrop

Grumman the No. 1 shipbuilder and the No. 2 U.S. defense contractor behind Lockheed Martin

Corporation (Northrop Grumman Space Technology, 2005). High-profile products include the B-

2 stealth bomber, amphibious assault ships, and oil tankers. Due to this breadth of expertise,

Northrop Grumman has a significant advantage among competitors. In December 2002 Northrop

Grumman’s shareholders approved TRW’s merger with the company; TRW Space & Electronics

became Northrop Grumman Space Technology. Until that time, Northrop Grumman did not

possess a space business. Northrop Grumman’s acquisition of TRW’s space business added the

final piece of the puzzle. It can now proclaim it builds products ranging from under seas to


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The Electronic systems sector located in Linthicum, Maryland product line represents a balanced

mix of emerging technologies, developing programs, and mature product lines. Our customers

include all U.S. military services, non-defense government agencies, foreign governments and

commercial enterprises. Their Electronic Systems possesses the capacity to produce:

Radar Systems C4ISR Electronic Warfare Naval & Marine Systems

Navigation & Guidance Military Space Government Systems

The Information Systems sector located in McLean, Virginia Northrop Grumman Information

Systems is a leading global provider of advanced solutions that deliver timely, enabling

information where it’s needed most for its military, intelligence, civilian, state, local and

commercial customers. The Information Systems is an $8.4 billion business employing more

than 24,000 employees with offices in 50 states and 18 countries. The Information Systems

possesses the capacity to produce:

Command & Control Systems Network Communications Intelligence, Surveillance

Intelligence & Reconnaissance Systems Enterprise Systems and Security

IT/Network Outsourcing Federal, State/Local & Commercial

Homeland Security & Health

The Technical services sector located in Herndon, Virginia is a leading provider of network-

centric solutions and products, which consolidated its technical services capabilities to create one

integrated market. The consolidation gave Northrop Grumman a Technical Services business

sector that possesses enormous capabilities, scope and global reach. The Technical Service

possesses a capacity to produce:

Systems Support Base and Infrastructure Support Range Operations

Maintenance Support Technical and Operational Support Training and Simulations

Life Cycle Optimization Supply Chain Management Lead Support Integrator (LSI)

Performance Based Logistics Modifications, Repair and Overhaul (MRO)

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Live, Virtual and Constructive Domains

Shipbuilding sector located in Newport News, Virginia, is the nation’s sole industrial designer,

builder and re-fueler of nuclear-powered aircraft carriers, the sole supplier and builder of

amphibious assault and expeditionary warfare ships to the U.S. Navy, the sole builder of

National Security Cutters for the U.S. Coast Guard, and one of only two companies that builds

the U.S. Navy’s current fleet. Shipbuilding sector is also a full-service systems provider for the

design, engineering, construction and life cycle support of major programs for surface ships and

a provider of fleet support and maintenance services for the U.S. Navy. The Shipbuilding sector

possesses a capacity to produce:

Naval Systems Integrator Surface Combatants Expeditionary Warfare Ships

Marine Composite Technology Coast Guard Cutters Aircraft Carrier Auxiliary Ships

Commercial Ships Nuclear Aircraft Carriers Nuclear Submarines

Fleet Maintenance Overhaul & Refueling


Do to Chronic underperformance in the last few years; CEO Wes Bush is planning to divestiture

Northrop’s naval shipbuilding business by spinning-off this sector to shareholders. The process

is expected to take place at the beginning of the first quarter of 2011(FORBES, 2011). As of

March 31, 2011, Northrop Grumman’s shipbuilding business sector is now Huntington Ingalls


4. Processes

One of Northrop Grumman’s key strategic initiatives was to improve the quality and processes

around program management. Competitive pressures, internal performance goals along with

increasing government and customer requirements made it imperative that Northrop Grumman

improve its project management processes. Northrop Grumman had successfully instituted Lean

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Six Sigma as the de facto project management discipline across all sectors. Lean Six Sigma is

based on Six Sigma a statistically-based method developed by Motorola Inc. that reduces costs

of manufacturing by eliminating defects. With the addition of Lean Manufacturing techniques, a

term coined by Jim Womack, Ph.D., at MIT's International Motor Vehicle Program to describe

Toyota’s business practices, which reduce costs by eliminating waste and unnecessary

inventory(What is Lean?, Lean Enterprise Institute, 2009). Lean Six Sigma is a powerful, proven

method of improving business efficiency and effectiveness. In a nutshell, here are the key

principles of Lean Six Sigma to bear in mind:

Focus on the customer.

Identify and understand how the work gets done (the value stream).

Manage, improve and smooth the process flow.

Remove Non-Value-Added steps and waste.

Manage by fact and reduce variation.

Involve and equip the people in the process.

Undertake improvement activity in a systematic way.


A prime example of the impact of Lean Six Sigma on Northrop Grumman’s business operations

processes can be seen it’s ship building sector. In January 2009, the U.S. Navy commissioned

the nuclear aircraft carrier U.S.S. George H.W. Bush (CVN 77), constructed over seven years by

Northrop Grumman Newport News shipbuilding plant at a cost of $6.2 billion. However, what

was more critical is the maintenance cost for the aircraft carrier with a 50 year life cycle. The

article “Staying Seaworthy” by Robert J. Kucner, details the lessons learned from Northrop

Grumman ship building sector applied Lean Six Sigma directly to their ship remanufacturing


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Pre-Lean Six Sigma remanufacturing conditions entailed daily crisis management. Emphasis

was placed on shifting macro-level schedules and pulling resources from other jobs in progress

to support tasks on the daily critical path. Tooling came from several locations and materials

where delivered to employee’s supervisor. Technical instructions consisted of short and vague

tasks descriptions and component blueprints. Inefficiencies existed in coordination between

trades, because work was organized functionally. Shipboard component remanufacturing

commonly delayed the overall delivery date, and de-scoping occurred due to scheduling and cost

overruns (Staying Seaworthy, ASQ Six Sigma Forum Magazine).

Post Lean Six Sigma application saw significant improvements in Northrop Grumman’s ship

remanufacturing process. Through the empowered cross functional teams, and close engineer

support the production workers developed greater capacity to solve technical problems.

Production flow improved and new costs and scheduling benchmarks were established.

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Observed Lean Context: High-process-variability remanufacturing

Six Sigma methods Case: Shipboard component remanufacturing

to develop

Internal Created virtual work cells.

process Created cross-functional production teams.

stability Developed standard work for each work cell,

highly general in nature

Established consumables trailer near dry dock

for materials.

Created tool kits for trade and specific job


Established visual metrics board to track

productivity to schedule.

Just-in-time Established work-in-processes (WIP) controls for

production each supervisor and skilled trade.

Developed pull system between work teams to

manage WIP.

Established visual control board to manage flow

of production personnel.

Leveled production by using critical chain

scheduling and WIP controls.

Built-in quality Implemented job rotation and cross-functional


Placed phones strategically in production zones

with direct line to engineering.

Scheduling daily stand-up meetings of production

team to discuss process abnormalities.

Assigned full-time engineers to production zones.

Required engineers to always carry pagers for

immediate contact.

(Staying Seaworthy, ASQ Six Sigma Forum Magazine).

5. Inventory

Northrop Grumman produces and provides a wide range of products and services for its

customers (see Appendix A, list of Northrop Grumman programs and description).

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1. People and Staffing

The men and women of Northrop Grumman come from diverse backgrounds and have unique

skills and experience. It is this diversity that makes them great! It fosters creativity and

innovation and enables them to create some of the most technically sophisticated products and

services in the world.

2. Type of Skills

Northrop Grumman hires candidates who have a wide range of skills to support their innovative

systems, products and solutions. The Aerospace, Electronics, Information Systems, and

Technical Services business sectors utilize these diverse skills when supporting government and

commercial customers worldwide. The following are career opportunities available at Northrop



Business Development Business Management Program Management

Quality Assurance Supply Chain


Database Architect Intelligence Analyst Network Engineer

Software Engineer Systems Engineer


Civil/Structural Engineer Electrical Engineer Mechanical Engineer

Quality Assurance Software Engineer Systems Engineer

Work Control Analyst

Health IT

Business Process Analyst Computer Systems/Security Analyst Health Research Analyst

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Scientific Data Analyst Software Development Analyst Systems Administrator

Web Content Developer

Human Resources & Administration


Assembler Composite Mechanic Electrician Quality Assurance


3. Organizational Chart (Number of Employees & Skills)

2011 Workforce Data Chart

Job Category Total















Executive 285 83.16% 16.84% 87.37% 4.91% 2.81% 1.05% 3.70%

First/Middle Managers 18,596 81.76% 18.12% 80.58% 9.91% 3.53% 4.89% 0.97%

Professionals 53,825 74.18% 25.81% 73.21% 8.77% 5.32% 11.02% 1.67%

Technicians 10,437 82.39% 17.55% 70.08% 13.51% 7.64% 6.82% 1.90%

Sales Workers 10 70.00% 30.00% 80.00% 20.00% 0.00% 0.00% 0.00%

Administrative 7,627 27.42% 72.57% 60.71% 21.33% 10.90% 5.19% 1.86%

Craft Workers 20,270 90.82% 9.06% 47.54% 40.29% 8.61% 2.10% 1.33%

Operatives 4,657 73.80% 26.20% 43.31% 42.52% 7.43% 5.75% 0.99%

Laborers 687 73.80% 26.20% 31.30% 53.13% 13.54% 1.02% 1.02%

Service Workers 2,289 65.18% 34.82% 45.48% 31.98% 13.72% 6.86% 1.97%

Total Workforce 118,683 75.76% 24.19% 66.99% 17.58% 6.45% 7.43% 1.51%

( 2010 Annual Report


4. Payroll

Year Ended December 31

$ in millions, except per share 2010 2009 2008 2007 2006

Payroll and employee benefits 14,032 14,751 13,036 12,301 11,918

(Northrop Grumman Corporation’s Proxy Statement Form 10-K, 2010).

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5. Union/Non-Union

Northrop Grumman maintains good relations with its 117,100 employees, of which

approximately 20 percent are covered by 32 collective bargaining agreements. In 2010, they

negotiated or renegotiated twelve of their collective bargaining agreements. Collective

bargaining agreements generally expire after three to five years and are subject to renegotiation

at that time. In 2011, Northrop Grumman may experience difficulties with renewals and

renegotiations of existing collective bargaining agreements. If they experience such difficulties,

we could incur additional expenses and work stoppages. Any such expenses or delays could

adversely affect programs served by employees who are covered by collective bargaining

agreements (Northrop Grumman Corporation’s Proxy Statement Form 10-K, 2010).

6. Training

Northrop Grumman is committed to cultivating the best within its employees, increasing job

skills and knowledge of the business, and providing opportunities for career exploration and



Northrop Grumman has an enterprise online learning management system that will provide its

employees with easy access to shared learning resources and information. This online system

supports employees by identifying required or recommended learning, accessing growth

opportunities, tracking progress and closing competency gaps to improve job performance. They

also offer an e-Learning portal available to all employees 24/7, which allows for the creation of

customized development plans and course selection based on alignment with career goals.

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Northrop Grumman has resources specifically designed to help their employees who desire to

continue their education through a generous and innovative education assistance program to

pursue college or post-baccalaureate studies that are related to their roles at the company.

Career Planning

Trained professionals at Northrop Grumman can offer guidance on everything from mapping out

its employee’s career path to guidance for developing specific targeted skills. Northrop

Grumman’s eAdvisor provides online coaching and development advice for its employees at all

levels. The site includes development suggestions, action steps, resources, and planning

templates to help employees work through business challenges and develop the skills you



Northrop Grumman believes mentoring is of extreme importance in developing talent at all

levels, transferring knowledge, providing career guidance, and fostering an inclusive culture. In

order for companies to sustain growth, knowledge must continually be passed on to cultivate the

next generation of employees and enable the current workforce to achieve new goals and

increased levels of employee engagement.

Functional Talent Development

Northrop Grumman has designed specific programs to enhance professional growth. Below are

two examples of programs that may be offered based on sector and location.

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The Systems Engineering Associates program is a selective 2-year Information Systems

Sector developmental rotation program, designed for high-potential individuals interested

in systems engineering. Its purpose is to increase an individual's awareness and exposure

to systems engineering and the company, thereby expanding the employee's network and

accelerating career growth.

Future Technical Leaders Program (FTLP) is a recruiting and professional development

opportunity aimed at identifying and investing in Northrop Grumman's next generation of

visionary technologists. In this forward-thinking program, selected individuals will spend

three years working on a variety of projects from the technically innovative to the

socially significant.

Performance Management

Common performance management process, PERFORM1NG or "Performing One Northrop

Grumman", accomplishes these objectives and also helps to focus on employee development.

All managers and employees are encouraged to discuss development for employees’ current and

future jobs frequently to support performance and continuous improvement in both the short- and

long-term. Development conversations support understanding ability, career interests, and level

of engagement to ensure success in current assignments and potential for future job


LEAD1NG Curriculum

There is a wealth of programs created to support leadership development for our employees at all

levels of the organization. Northrop Grumman employees are encouraged to exhibit leadership

and to act as thought leaders, therefore we have designed programs with our various employees’

needs in mind.

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360 Feedback Instrument

The 360 degree feedback instrument is a tool that allows our leaders to receive confidential

feedback from people who interact with them on all sides – managers, peers, subordinates and

themselves – as the “360 degree” name suggests. After all participants have submitted their

feedback, a trained coach meets with the leader to interpret the report and helps to establish

developmental goals based on the results.

Executive Education

These programs and classes usually do not result in a degree, however, they provide valuable

insight as well as the unique perspective that comes from interacting with leaders at other

companies that cannot be gained by attending internal programs alone. Meeting people from

other organizations to hearing their thought on relevant topics and being in an academic setting

lends itself to complete concentration and engagement in the experience.

Leadership Coaching

Certified coaches can help employees establish targeted goals that are aligned with the goals of

the organization. The topics including leadership communications, conflict management, critical

thinking, decision making, presentation skills, talent management, strategic thinking and

planning. (

7. Management Structure

At Northrop Grumman, employees work in an environment of cutting-edge technology that is

characterized by a strong sense of caring, community and mutual respect. Employees share

experiences, insights, diverse perspective and creative solutions with some of the best minds in

the industry through integrated product teams, cross-functional teams, employee resource groups

and time spent with mentors (

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Northrop Grumman recently opened the Innovation Institute. The five-story, 156,000-square-foot

leased office building is situated on West Nursery Road in the West Quest Technology Park

where Northrop Grumman already maintains its Electronic Systems sector headquarters. The

new office facility features several uniquely-configured collaboration areas where small to

medium-sized teams of employees can work together on various advanced technology

development projects. The goal is to take people out of conference rooms or dark offices and

encourage them to work together in an area that allows for natural light and more free-flowing

ideas (

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1. Target Market

Northrop Grumman’s primary customer is the U.S. Government. Revenue from the U.S.

Government (which includes Foreign Military Sales) accounted for approximately 92 percent of

total revenues in 2010, 2009, and 2008. No single product or service accounted for more than ten

percent of total revenue during any period presented (Northrop Grumman Corporation’s Annual

Report. Form 10-K, 2010). The remainder of their target market is international agencies,

commercial agencies, and state & local governments.

2. Market Share

Of the four major U.S. Aerospace and Defense companies: Boeing, Lockheed Martin, Northrop

Grumman and General Dynamics; the follow graph depicts the total market share of U.S.

Aerospace and Defense industry:

NOC= Northrop Grumman BA= Boeing GD=General Dynamics LMT=Lockheed Martin

Data for graph was obtained from

Sales as of






33.88 Bil.

64.97 Bil.


46.37 Bil.


32.29 Bil.



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3. Size

It is estimated that the value of total U.S. aerospace industry shipments in 2010 was $171 billion,

a decrease of 4.5 percent from the 2009 figure of $179 billion.

Estimated total U.S. aerospace industry shipments in 2010 were roughly half and half, military

and civil, with the value of civil shipments ($90 billion) slightly exceeding that of military

shipments ($82 billion). (Analysis of the U.S. Aerospace Industry Office of Transportation and

Machinery International Trade Administration U.S. Department of Commerce March 2011).

4. Advertising Business to Business (B2B)

a. Marketing

The majority of Northrop Grumman’s marketing comes directly from a business-to-business

(B2B) marketing or business development practice to market its products. Northrop Grumman

utilizes business development personnel as ambassadors that connect the needs of the war-fighter

to innovative and affordable solutions, in a balanced continuum.

Business development’s purpose is to provide an integrated capability to pursue new business

opportunities in a manner that reaches beyond the traditional business development framework.

It pulls together all elements associated with defining a winning offer or business opportunity,

such as customer requirements, long range campaign planning, environment shaping, capture

planning, and the business management and systems engineering integration infrastructure to

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efficiently balance these elements. Business development personnel participate in all aspects of

identifying, qualifying, pursuing, bidding, and winning new business opportunities. Business

development encompasses a variety of detailed task areas ranging from strategic planning and

strategy formulation to capture management and proposal development


b. Media marketing

Northrop Grumman's newest advertising campaign, The Value of Performance, showcases the

value of Northrop Grumman’s performance in our key areas of focus: Unmanned Systems,

Cyber-security, C4ISR and Logistics. The Value of Performance reflects the importance the

company places on both values and performance. In concert with this, The Value of Performance

focus is also being leveraged in our newest employee recruitment advertising campaign, themed

At the Heart of What We Do.


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c. Marketing venues

Threw out the year, Northrop Grumman attends several Trade and Air shows to promote, engage

and attract new business opportunities such as the 2011 International Paris Air Show 2011.

Northrop Grumman Corporation participated in a series of media

briefings during the International Paris Air Show 2011 held at Le Bourget, France. The company

highlighted a wide variety of its programs and capabilities, including unmanned aerial vehicles,

electronic warfare systems and its airborne early warning and control platforms


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The growth of the Aerospace and Defense industry depends largely on the spending outlook of

government departments, with the U.S. defense budget being the primary driver. The U.S. is the

world’s largest aerospace and defense market, and also home to the world’s largest military


In 2010, the total global defense expenditure of $1.6 trillion grew 1.3% from 2009 levels in real

terms. The majority of this growth came from the U.S. Defense spending, which was $698

billion in 2010, accounting for roughly 43% of the total global defense expenditures


1. Revenue

a. Consolidated Operating Results(Corporation)

Selected financial highlights are presented in the table below:

Year Ended December 31

$ in billions, except per share 2010 2009 2008

Sales and service revenues $ 34,757 $ 33,755 $ 32,315

Cost of sales and service revenues (28,609) (28,130) (26,375)

General and administrative expenses (3,078) (3,142) (3,143)

Goodwill impairment (3,060)

Operating income (loss) 3,070 2,483 (263)

Interest expense (281) (281) (295)

Charge on debt redemption (231)

Other, net 37 64 38

Federal and foreign income taxes (557) (693) (859)

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Diluted earnings (loss) per share from continuing operations 6.77 4.87 (4.12)

Net cash provided by operating activities 2,453 2,133 3,211

Sales and Service Revenues

Sales and service revenues consist of the following:

Year Ended December 31

$ in millions 2010 2009 2008

Product sales $ 21,776 $ 20,914 $ 19,634

Service revenues 12,981 12,841 12,681

Sales and service revenues $ 34,757 $ 33,755 $ 32,315

Sales and service revenues for 2010 increased $1 billion, or 3 percent over 2009. The increase is

due to $862 million higher product sales and $140 million higher service revenues. The 4 percent

increase in product sales reflects sales growth in Aerospace Systems and Shipbuilding. The 1

percent increase in service revenues reflects sales growth at Technical Services.

Sales and service revenues for 2009 increased $1.4 billion, or 4 percent, over 2008. The increase

is due to $1.3 billion higher product sales and $160 million higher service revenues. The 7

percent increase in product sales reflects sales growth in Aerospace Systems, Electronic Systems

and Shipbuilding. The 1 percent increase in service revenues reflects sales growth in Information

Systems and Technical Services (Northrop Grumman Corporation’s Annual Report. Form 10-K,


Page 28: Analysis of Northrop Grumman


b. Revenue by Business Sector


Year Ended December 31

$ in millions 2010 2009 2008

Sales and Service Revenues $ 10,910 $ 10,419 $ 9,825

Segment Operating Income 1,256 1,071 416

As a percentage of segment sales 11.5% 10.3% 4.2%


Year Ended December 31

$ in millions 2010 2009 2008

Sales and Service Revenues $ 7,613 $ 7,671 $ 7,048

Segment Operating Income 1,023 969 947

As a percentage of segment sales 13.4% 12.6% 13.4%


Year Ended December 31

$ in millions 2010 2009 2008

Sales and Service Revenues $ 8,395 $ 8,536 $ 8,174

Segment Operating Income 756 624 626

As a percentage of segment sales 9.0% 7.3% 7.7%

Page 29: Analysis of Northrop Grumman



Year Ended December 31

$ in millions 2010 2009 2008

Sales and Service Revenues $ 6,719 $ 6,213 $ 6,145

Segment Operating Income (Loss) 325 299 (2,307)

As a percentage of segment sales 4.8% 4.8% (37.5%)


Year Ended December 31

$ in millions 2010 2009 2008

Sales and Service Revenues $ 3,230 $ 2,776 $ 2,535

Segment Operating Income 206 161 144

As a percentage of segment sales 6.4% 5.8% 5.7%

(Northrop Grumman Corporation’s Annual Report. Form 10-K, 2010).

2. Expenses

Cost of sales and service revenues and general and administrative expenses are comprised of the


Year Ended December 31

$ in millions 2010 2009 2008

Cost of sales and service revenues

Cost of product sales $ 16,820 $ 16,591 $ 15,490

% of product sales 77.2% 79.3% 78.9%

Cost of service revenues 11,789 11,539 10,885

% of service revenues 90.8% 89.9% 85.8%

General and administrative expenses 3,078 3,142 3,143

Page 30: Analysis of Northrop Grumman


% of total sales and service revenues 8.9% 9.3% 9.7%

Goodwill impairment 3,060

Cost of sales and service revenues $ 31,687 $ 31,272 $ 32,578

Cost of product sales in 2010 increased $229 million, or 1 percent, over 2009 primarily due to

the higher sales volume described above. The decrease in cost of product sales as a percentage of

product sales was primarily due to lower GAAP pension expenses and performance

improvements in Aerospace Systems and Electronic Systems.

Cost of service revenues in 2010 increased $250 million, or 2 percent, over 2009 and as a

percentage of service revenues increased 90 basis points, primarily due to program mix changes

at Information Systems.

Cost of product sales in 2009 increased $1.1 billion, or 7 percent, over 2008 primarily due to the

higher sales volume described above. The increase in cost of product sales as a percentage of

product sales was primarily due to higher GAAP pension costs across all of its businesses.

Cost of service revenues in 2009 increased $654 million, or 6 percent, over 2008 primarily due to

the higher sales volume described above. The increase in cost of service revenues as a percentage

of service revenues was primarily due to higher GAAP pension costs across all of its businesses.

(Northrop Grumman Corporation’s Annual Report. Form 10-K, 2010).

3. Cash Flow

The table below reconciles net cash provided by operating activities to free cash flow:

Year Ended December 31

$ in millions 2010 2009 2008

Net cash provided by operating activities $ 2,453 $ 2,133 $ 3,211


Page 31: Analysis of Northrop Grumman


Capital expenditures (770) (654) (681)

Outsourcing contract & related software costs (6) (68) (110)

Free cash flow from operations $ 1,677 $ 1,411 $ 2,420

a. Operating Activities

Net cash provided by operating activities in 2010 increased $320 million as compared with 2009

and reflects improved cash collections from its customers and lower tax payments. In 2009, net

cash provided by operating activities included $508 million taxes paid related to the sale of ASD

(Advisory Services Division). Pension plan contributions totaled $894 million in 2010, of which

$830 million was voluntarily prefunded.

In 2011, Northrop Grumman expects to contribute the required minimum funding level of

approximately $62 million to its pension plans and approximately $160 million to its other post-

retirement benefit plans, and also expect to make additional voluntary pension contributions of

approximately $500 million. Northrop Grumman expects cash generated from operations for

2011 to be sufficient to service debt and contract obligations, finance capital expenditures,

continue acquisition of shares under the share repurchase program, and continue paying

dividends to its shareholders. Although 2011 cash from operations is expected to be sufficient to

service these obligations, it may borrow under credit facilities to accommodate timing

differences in cash flows. Northrop Grumman has a committed $2 billion revolving credit

facility that is currently undrawn and that can be accessed on a same−day basis. Additionally,

Northrop Grumman believes it could access capital markets for debt financing for longer-term

funding under current market conditions, if needed.

Net cash provided by operating activities in 2009 decreased $1.1 billion as compared with 2008,

reflecting higher voluntary pension contributions and increased income taxes paid resulting from

Page 32: Analysis of Northrop Grumman


the sale of ASD. Pension plan contributions totaled $858 million in 2009, of which $800 million

was voluntary prefunded.

Net cash provided by operating activities in 2008 increased $321 million as compared with 2007,

and reflects lower income tax payments and continued trade working capital reductions. Pension

plan contributions totaled $320 million in 2008, of which $200 million was voluntarily

prefunded, and were comparable to 2007. Net cash provided by operating activities for 2008

included $113 million of federal and state income tax refunds and $23 million of interest income.

b. Investing Activities

Cash used in investing activities was $761 million in 2010 and reflects $770 million of capital

expenditures, which includes $57 million of capitalized software costs. Capital expenditure

commitments at December 31, 2010, were approximately $444 million, which are expected to be

paid with cash on hand.

Cash provided by investing activities was $867 million in 2009. During 2009, Northrop

Grumman received $1.65 billion in proceeds from the sale of ASD, paid $68 million for

outsourcing costs related to outsourcing services contracts, and paid $33 million to acquire

Sonoma Photonics, Inc. and the assets from Swift Engineering’s Killer Bee Unmanned Air

Systems product line. Capital expenditures in 2009 were $654 million and included $36 million

of capitalized software costs.

Cash used in investing activities was $626 million in 2008. During 2008, Northrop Grumman

received $175 million in proceeds from the sale of the Electro Optical Systems business. It spent

$92 million for the acquisition of 3001 International, Inc., paid $110 million for outsourcing

costs related to outsourcing services contracts, and released $61 million of restricted cash related

to the Gulf Opportunity Zone Industrial Development Revenue Bonds. Northrop Grumman had

Page 33: Analysis of Northrop Grumman


$11 million in restricted cash as of December 31, 2008 related to the Xinetics Inc... Capital

expenditures in 2008 were $681 million and included $23 million of capitalized software costs.

c. Financing Activities

Cash used in financing activities in 2010 was $1.3 billion, which was comparable to 2009.

Financing activities in 2010 reflect $1.2 billion in debt payments, including the repurchase of

$682 million of higher coupon debt, $231 million for fees and associated premiums paid to the

tendering holders of these debt securities, and the repurchase of $178 million of Shipbuilding

indebtedness in connection with our analysis of strategic alternatives for that business.

These financing outflows were offset by $1.5 billion in net proceeds from new debt issuances.

In addition, we repurchased $1.2 billion of our common shares outstanding in 2010.

Cash used in financing activities in 2009 was $1.2 billion compared with $2 billion in 2008 and

reflects $843 million in net proceeds from new debt issuance in 2009.

Cash used in financing activities in 2008 was $2 billion compared to $1.5 billion in 2007. The

$532 million increase is primarily due to $380 million more for share repurchases and $171

million lower proceeds from stock option exercises.

Northrop Grumman repurchased 19.7 million, 23.1 million, and 21.4 million shares in 2010,

2009, and 2008, respectively. (Northrop Grumman Corporation’s Annual Report. Form 10-K,


4. Debt Obligations

The following table presents our contractual obligations as of December 31, 2010, and the

estimated timing of future cash payments:

Page 34: Analysis of Northrop Grumman


2012 − 2014 – 2016 and

$ in millions Total 2011 2013 2015 beyond

Long−term debt $ 4,808 $ 773 $ 9 $ 855 $ 3,171

Interest payments on long−term debt 3,035 241 430 416 1,948

Operating leases 1,514 367 499 330 318

Purchase obligations 9,303 6,042 2,782 464 15

Other long−term liabilities 1,488 321 347 239 581

Total contractual obligations $ 20,148 $ 7,744 $ 4,067 $ 2,304 $ 6,033

The table above also excludes estimated minimum funding requirements and expected voluntary

contributions for retiree benefit plans as set forth by ERISA (Employee Retirement Income

Security Act of 1974) in relation to the company’s pension and postretirement benefit obligations

totaling approximately $5.5 billion over the next five years: $722 million in 2011, $494 million

in 2012, $698 million in 2013, $696 million in 2014, and $719 million in 2015. The company

also has payments due under plans that are not required to be funded in advance, but are funded

on a pay−as−you−go basis (Northrop Grumman Corporation’s Annual Report. Form 10-K,


5. Liquidity

As stated in section (a) Operations Activities, Northrop Grumman has evaluated its future

liquidity needs, both from a short−term and long−term perspective. It is expect that cash on hand

at the beginning of the year plus cash generated from operations and cash available under credit

lines will be sufficient in 2011 to service debt, finance capital expansion projects, pay federal,

foreign, and state income taxes, fund pension and other post-retirement benefit plans, and

continue paying dividends to shareholders. Northrop Grumman has a committed $2 billion

Page 35: Analysis of Northrop Grumman


revolving credit facility, with a maturity date of August 10, 2012, that can be accessed on a same

day basis. It can also obtain additional capital to provide for long-term liquidity, if necessary,

from such sources as the public or private capital markets, the sale of assets, sale and leaseback

of operating assets, and leasing rather than purchasing new assets.

6. Company Stock

a. Common stock

The following table sets forth, for the periods indicated, the high and low closing sale prices of

Northrop Grumman’s common stock as reported in the consolidated reporting system for the

New York Stock Exchange Composite Transactions:

2010 2009

January to March $ 65.78 to $ 55.63 $ 49.72 to $ 34.35

April to June $ 69.38 to $ 54.44 $ 50.54 to $ 43.98

July to September $ 60.63 to $ 54.10 $ 52.75 to $ 43.23

October to December $ 65.34 to $ 60.11 $ 56.84 to $ 49.59

The approximate number of common stockholders was 32,388 as of February 7, 2011.

Quarterly dividends per common share for the most recent two years are as follows:

2010 2009

January to March $ 0.43 $ 0.40

April to June 0.47 0.43

July to September 0.47 0.43

October to December 0.47 0.43

$ 1.84 $ 1.69

Page 36: Analysis of Northrop Grumman


Northrop Grumman has 800,000,000 shares authorized at a $1 par value per share, of which

290,956,752 shares and 306,865,201 shares were outstanding as of December 31, 2010, and

2009, respectively.

b. Preferred Stock

Northrop Grumman has 10,000,000 shares authorized at a $1 par value per share, of which no

shares were issued and outstanding as of December 31, 2010, and 2009.

On February 20, 2008, Northrop Grumman’s board of directors approved the redemption of the

3.5 million shares of Series B Convertible Preferred Stock on April 4, 2008. Substantially all of

the preferred shares were converted into common stock at the election of stockholders prior to

the redemption date. All remaining non converted shares were redeemed on the redemption date.

Northrop Grumman issued approximately 6.4 million shares of common stock as a result of the

conversion and redemption.

7. Comparison to Industry

The following is a financial comparison of Northrop Grumman’s major competitors: Lockheed

Martin, Boeing, and General Dynamics:

Direct Competitor Comparison

NOC BA GD LMT Industry

Market Cap: 14.19B 44.10B 20.23B 24.02B 2.95B

Employees: 117,100 160,500 90,000 132,000 7.50K

Qtrly Rev Growth (yoy): -9.60% 6.20% -2.80% 2.40% 15.10%

Revenue (ttm): 33.88B 64.97B 32.29B 46.37B 876.70M

Gross Margin (ttm): 18.45% 19.34% 18.38% 10.54% 29.78%

EBITDA (ttm): 4.03B 6.37B 4.49B 4.71B 246.09M

Operating Margin (ttm): 9.72% 7.22% 12.14% 8.38% 7.00%

Net Income (ttm): 1.90B 3.53B 2.66B 2.70B N/A

EPS (ttm): 6.53 4.73 7.01 7.99 0.45

P/E (ttm): 7.82 12.58 7.97 9.03 17.34

PEG (5 yr expected): 0.96 1.09 1.06 1.02 1

P/S (ttm): 0.42 0.67 0.63 0.53 1.21

NOC =Northrop Grumman. BA = Boeing Co. GD = General Dynamics Corp.

LMT = Lockheed Martin Corporation Industry = Aerospace/Defense - Major Diversified


Page 37: Analysis of Northrop Grumman


Internal Analysis of Northrop Grumman Summary

SWOT Analysis

Northrop Grumman Corporation is a leading global security company providing innovative

systems, products and solutions in aerospace, electronics, information systems, and technical

services to government and commercial customers worldwide. Their core competencies are

aligned with the current and future needs of their customers and address emerging global security

challenges in key areas, such as unmanned systems, cyber-security, C4ISR, and logistics that are

critical to the defense of the nation and its allies. The following is a SWOT Analysis (Strengths,

Weaknesses, Opportunities and Threats) of the internal segments of Northrop Grumman

(Operations, Human Resources, Marketing and Finance) from the data collected in regards to the

internal analysis of Northrop Grumman:

Strengths Weaknesses

Brand Name Niche Market (dependent on U.S. Government)

Capital Resources

Superior Business Processes

Highly educated and trained work force

Opportunities Threats

Mergers, Acquisitions and Joint Business

Ventures with competitors Current U.S. Economy

Emerging Markets

Draw down of U.S. Forces in Iraq and


Page 38: Analysis of Northrop Grumman



1. Brand name recognition

Northrop Grumman is a highly respected name in the Defense Industry with an impeccable

reputation for quality products and services, as well as employment opportunities. It is number

61 on the Fortune 500 list. It is number 23 on BusinessWeek Global 1000 7, based on market

capitalization. Fortune Global 500 number 207, based on 2010 revenue. Fortune Global Most

Admired (7th in industry) based on criteria such as management, investment value and employee

talent. Forbes 2000 listed Northrop Grumman number 216, based on sales, profits, assets and

market value. Fortune 20 Great Employers for New Grads, based on opportunities, benefits and

compensation offered to recent college graduates. Number 2 in the Los Angeles Business Journal

Top Los Angeles County Private Employers based on number of employees. It is number 2 in

the Washington Technology list of Top 100 Federal Prime IT Contractors based on IT revenue. It

is number 3 in the Government Executive list of Top 200 Federal Contractors based on total

DOD procurement for 2010. These are just a few of the many accolades that attest to the brand

name and reputation of Northrop Grumman.


2. Capital resources and infrastructure

In 2010, Northrop Grumman grossed over $34 billion in sales, which was a 3% from 2009 sales

revenue. In addition, each of its business sectors saw a sales increase from 1 to 2% from 2009 to

2010. Its stock from January 2010 to December had a high of $69.38 to a low of $54.10 with an

average variance of $61.74 market price and a standard deviation of 7.86; thus, making its stock

price less volatile and a more desirable investment for investors.

Page 39: Analysis of Northrop Grumman


Northrop Grumman’s debt obligations appear to be at a minimal ranging from $2 million to $8

million based on a 2011 to 2016 time frame and with its future liquidity needs, both from a short-

term and long-term perspective, there is no foreseeable financial crisis for Northrop Grumman

and will continue to operate in the black for the foreseeable future.

Northrop Grumman possesses a vast array of production facilities in the continental U.S. and

abroad to support the needs of its customers. In addition, the decision to move its corporate

headquarters from Los Angeles to Falls Church, Virginia in order to be closer to its customer

will give it a comparative advantage over its competitors in particular Boeing which is

headquartered in Chicago, Illinois.

3. Superior business processes

Since its adoption of Lean Six Sigma into its business processes, Northrop Grumman

improvements in business efficiency and effectiveness has become its competitive advantage. It

offers its customers business process solutions in areas such as: business process management,

human capital management, and supply chain management solutions. Consequently, Northrop

Grumman has received several awards recognizing its business processes and practices: 2004

Top Maryland Employer of Distinction Maryland Society for Human Resource Management

State Council and The Daily Record for achievements and best practices in human resources,

NASA George M. Low Award, for demonstrated excellence and outstanding technical and

Page 40: Analysis of Northrop Grumman


managerial achievements in quality and performance, Thirty-eight Capability Maturity Model

Integration (CMMI) Level 5 awards for commercial and defense industry best practices for

software(most in the defense and information technology industries), Department of Defense

Best Value Gold Medal Supplier Award and the Department of Defense Nunn Perry Award

honoring the relationships between large companies and small firms they mentor.

4. Highly educated and trained work force

Northrop Grumman employs some of the most highly educated and diverse people to support its

innovative systems, products and solutions:


Northrop Grumman’s commitment to cultivating the best within its employees thru several

employee educational programs specifically designed to improve job performance and the

quality of its products and services…i.e., The Systems Engineering Associates program and

Future Technical Leaders Program, reinvests itself into its business process. Thus, because of its

small cell and cross-functional team concepts, these teams have diverse array of experts to

develop innovated products and solutions for Northrop Grumman and its customers.


1. Niche Market (dependence on U.S. Government)

Northrop Grumman’s dependence on the U.S. Government, a client that is 92% of its business,

carries many burdens. One such burden is that the government can cancel contracts anytime

creating loss revenue that would make it difficult for Northrop Grumman to recoup. Since the

recent debt crisis, the U.S. Congress is currently seeking new areas to cut spending in order to

Page 41: Analysis of Northrop Grumman


lower the U.S. National Debt. Another burden is that Northrop Grumman must obtain licenses

and authorization from the US government to sell its products outside the US.


1. Mergers, acquisitions and joint business ventures

With the uncertain of the recovery of the global economy and the planned withdraw of military

forces in Iraq and Afghanistan; it is an ideal time for the companies within the Defense Industry

to pull their resources together in the form of company mergers, acquire smaller profitable

companies or take on other defense companies as subcontractors when pursuing contracts.

Business ventures such as these would ensure the survivability of the companies. A prime

example is Northrop Grumman has a principal subcontractor on the F-35 Joint Strike Fighter

contract led by Lockheed Martin Aeronautics that is developing, demonstrating and producing

three variants of this single-engine, 5th generation fighter: a conventional take-off and landing

(CTOL) variant; a short-take off, vertical landing (STOVL) variant and a carrier variant (CV).

The F-35 Joint Strike Fighter team also includes BAE Systems as a principal subcontractor.

2. Emerging Market

The U.S. is currently engaged in asymmetric warfare and low-intensity conflicts and will

continue to engage in such military actions for the foreseeable future. Northrop Grumman is in a

prime position to produce low-cost high quality products to support such military engagements.

Each of their business sectors already produces products like unmanned aerial vehicles and

surveillance and intelligence gathering equipment that are more suited for such military

campaigns than most of their major competitors like Boeing and Lockheed Martin who are more

aircraft oriented manufacturers.

Page 42: Analysis of Northrop Grumman


US officials: US attack in Yemen kills al-Awlaki



U.S-born cleric Anwar al-Awlaki and Samir Khan, who edited the slick Jihadi Internet magazine,

were killed in an air strike on their convoy in Yemen by a joint CIA-U.S. military operation,

according to counterterrorism officials. After three weeks of tracking the targets, U.S. armed

drones and fighter jets shadowed the al-Qaida convoy before armed drones launched their lethal

strike early Friday.

It is likely that the unmanned drones that conducted the attack where manufactured by Northrop

Grumman or its competitors; thus, proving the company’s understanding of the warfighters



1. Current U.S. Economy

With the uncertainty of the U.S. economy and congress seeking new measures to develop a

balanced budget and reduce the national debt, it likely that this will affect the Defense Industry

since a large percentage of the U.S. Budget is in defense appropriation.

Page 43: Analysis of Northrop Grumman


2. Draw down of military forces in Iraq and Afghanistan

As the U.S. begins its draw down of its troops in the Middle East region any current and or

future contracts supporting those campaigns maybe subject to immediate cancelation.


Operationally, Northrop Grumman possesses a business strategy that is customer focus and a

lines its products to meet their customer’s need. It maintains a vast array of facilities around the

world so that it can deliver its products to where ever the customer is or needs its products. It

possesses business process that has allowed it grow and prosper into global name in the

Aerospace and Defense Technology Industry.

Human Resources, Northrop Grumman hire only the best and it re-educates its workforce in the

latest technology in order to improve the quality and performance of its product and create

innovated products that meets the needs of its customers.

Marketing, Northrop Grumman takes a personal approach that appeal directly to its customers.

Its approach is a one-on-one or business-to-business where they advertising directly to the

customer and ask them, “What do you need? This is what we can do for you.”

Financially, Northrop Grumman is fiscally responsible. Its forward thinking allowed it to

increase revenue year after, while still being able to pay dividends to shareholders and have a

liquidity plan if such a need arises.

Page 44: Analysis of Northrop Grumman


External Analysis of Northrop Grumman

1. Demographics

Northrop Grumman’s primary client is the U.S. Government. Therefore, it does not deal with

demographics in the traditional sense. They don’t target women between the ages of 21 to 35 as

a target market to sell unmanned aerial vehicles.

2. International


A key element of Northrop Grumman’s growth is its commitment to the international

marketplace. The company has a range of industry-leading capabilities available for international

markets and sells products and services to customers in 25 nations.

Northrop Grumman has a well-established international presence outside the United States and

maintains a network of more than 30 regional business development offices and local businesses

serving customers in key international markets in Europe, the Middle East and Asia Pacific


Page 45: Analysis of Northrop Grumman



The United Kingdom (UK) is Northrop Grumman’s largest international customer and remains a

critically important market for the company as a supplier base and a source for technology

partners. The company has a heritage of operating in the UK that spans 100 years. Northrop

Grumman’s UK-based businesses play a key role in supporting the UK armed forces as well as

developing security and resilience capabilities for the UK. Its UK businesses are also significant

exporters to countries around the world. Northrop Grumman operates from ten key locations in

the UK and provides avionics, communications, electronic warfare systems, marine navigation

systems, robotics, C4I solutions and mission planning, air traffic management, cyber-security,

aircraft whole life support, IT systems and software development. Since 2007 the company has

opened four new UK facilities increasing its in-country technical capabilities and enabling it to

be more responsive to customers’ needs.


In mainland Europe, Northrop Grumman operates from locations in France, Germany, Italy and

Norway providing navigation, air traffic control and postal automation systems. The company

also has offices in Belgium and Switzerland.


SOLYSTIC is a major player in the postal sorting market and has built its reputation as an

industry leader in the field of mail sorting machines and character recognition technology. It has

supplied post handling systems in 25-countries on all five continents. SOLYSTIC is based in

Gentilly, Paris and at Bourg les Valences near Lyons.

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Northrop Grumman has been established in Germany since 1961 and has facilities in Freiburg

and Hamburg. Northrop Grumman LITEF, based in Freiburg, is a leader in the development and

manufacture of navigation and reference systems for air, land and maritime applications for

military and civilian customers around the world. Northrop Grumman LITEF is a world leader in

fiber-optic gyro systems and has produced and delivered more than 64,000 systems customers.

Northrop Grumman Sperry Marine has its mainland Europe facility in Hamburg, and provides

smart navigation and ship control solutions for the international marine industry together with

customer service and support.


Northrop Grumman has been operating from its Pomezia facility near Rome in Italy since 1961

and today Northrop Grumman Italia specializes in the design, development and production of a

range of integrated navigation systems. Primarily used in avionics and tactical applications, its

products are also for naval and land applications and include Inertial Navigation Systems (INS),

Global Positioning Systems (GPS), Air Data Sensors (ADS) and Magnetic Sensor Units (MSU).


Northrop Grumman Park Air Systems has facilities in Oslo and Horten, Norway and supplies air

traffic management systems for air-space operations worldwide.


Northrop Grumman has had an active presence in the Middle East for more than a decade with

its regional headquarters in Abu Dhabi, UAE and has well established partnerships with Dubai,

the UAE and other countries in the region, where it supports a variety of defense and civil

programs. The company opened an office in Riyadh, Saudi Arabia in 2008.

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Northrop Grumman has offices across the Asia Pacific region: Seoul, Korea; Tokyo; Taipei,

Taiwan; Singapore; New Delhi; and Canberra, Australia


Northrop Grumman has offices in Canberra and with well-established relationships with

Australia and other countries in the region and has been supporting a variety of both defense and

civil programs for more than 20 years.


Northrop Grumman has been working with the Indian armed forces and Indian industry for more

than 25-years. We support India in a variety of defense and civil applications including air traffic

control communications systems and radars, unmanned ground vehicles for the Indian Army and

marine navigation systems for the Indian Navy and bring significant, capabilities for homeland

defense modernization and command & control, intelligence, surveillance and reconnaissance

(C2ISR). We continue to develop our presence in India through strategic industrial partnerships

and in 2007 opened offices in New Delhi which has been expanded to include representatives

from several Northrop Grumman businesses (

3. Economic

The weaknesses in the U.S. and markets around the world in addition to the austerity measures

that are currently or will likely take place will have a profound effect on the Global Defense

Industry. As of 29 September, 2011, Northrop Grumman’s stocks are trading at $52 dollars a

share and has been trading at this stock price plus or minus for several months. This is a $2 dollar

difference from the lowest stock price of $54 dollars from 2010 and $7 dollars difference from

its 2010 average variance of $61 dollars.

Page 48: Analysis of Northrop Grumman


It is important for any company to understand the current economic conditions of the nations that

it conducts business in. Understanding the economic conditions allows a company to gather

business intelligence, analyze the information, and develop possible outcomes and solutions; an

assessment process very similar to a SWOT Analysis. The following information is an economic

overview of the countries and regions Northrop Grumman conducts business with:

United Kingdom

In 2008, the global financial crisis hit the economy particularly hard, due to the

importance of its financial sector. Sharply declining home prices, high consumer

debt, and the global economic slowdown compounded Britain's economic problems,

pushing the economy into recession in the latter half of 2008 and prompt ing the then

Brown government to implement a number of measures to stimulate the economy and

stabilize the financial markets; these include nationalizing parts of the banking

system, cutting taxes, suspending public sector borrowing rules, and moving forwa rd

public spending on capital projects. Facing burgeoning public deficits and debt

levels, the Cameron government in 2010 initiated a five -year austerity program,

which aims to lower London's budget deficit from over 10% of GDP in 2010 to

nearly 1% by 2015. The Bank of England periodically coordinates interest rate

moves with the European Central Bank, but Britain remains outside the European

Economic and Monetary Union (EMU).

In addition, 2.4% of the United Kingdom’s GDP (2005 est.) is spent on military

expenditures, making them number 63 in comparison to the world


Page 49: Analysis of Northrop Grumman



France has weathered the global economic crisis better than most other big EU

economies because of the relative resilience of domestic consumer spending, a large

public sector, and less exposure to the downturn in global demand than in some

other countries. Nonetheless, France's real GDP contracted 2.5% in 2009, but

recovered somewhat in 2010, while the unemployment rate increased from 7.4% in

2008 to 9.5% in 2010. However, the government pursuit of aggressive stimulus and

investment measures in response to the economic crisis are contributing to a

deterioration of France's public finances. The government budget deficit rose sharply

from 3.4% of GDP in 2008 to 6.9% of GDP in 2010, while France's public debt rose

from 68% of GDP to 82% over the same period. Paris is terminating stimulus

measures, eliminating tax credits, and freezing most government spending to bring

the budget deficit under the 3% euro-zone ceiling by 2013, and to highlight France's

commitment to fiscal discipline at a time of intense financi al market scrutiny of euro

zone debt levels. President SARKOZY, who secured passage of pension reform in

2010, is expected to seek passage of some tax reforms in 2011, but he may delay

additional, more costly, reforms until after the 2012 election.

In addition, 2.6% of France’s GDP (2005 est.) is spent on military expenditures,

number 54 in comparison to the world (



The German economy the fifth largest economy in the world in terms of PPP

(Purchasing Power Parity) and Europe's largest. Germany is a leading exporter of

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machinery, vehicles, chemicals, and household equipment and benefits from a highly

skilled labor force. Like its western European neighbors, Germany faces significant

demographic challenges to sustained long-term growth. Low fertility rates and

declining net immigration are increasing pressure on the country's social welfare

system and necessitate structural reforms. The modernization and integration of the

eastern German economy where unemployment can exceed 20% in some

municipalities continues to be a costly long-term process, with annual transfers from

west to east amounting in 2008 alone to roughly $12 billion.

Reforms launched by the government of Chancellor Gerhard SCHROEDER (1998 -

2005), deemed necessary to address chronically high unemployment and lo w average

growth, contributed to strong growth in 2006 and 2007 and falling unemployment.

These advances, as well as government subsidies, reduced working hour scheme,

help explain the relatively modest increase in unemployment during the 2008 -09

recession, the deepest since World War II and its decrease to 7.4% in 2010. GDP

contracted 4.7% in 2009, but grew by 3.6% in 2010. In its annual projection for

2011, the Federal Government expects the upswing to continue, with GDP forecast

to grow this year at a real rate of 2.3%. The recovery was attributable primarily to

rebounding manufacturing orders and exports increasingly outside the Euro Zone.

Domestic demand, however, is becoming more significant driver of Germany's

economic expansion.

Stimulus and stabilization efforts initiated in 2008 and 2009 and tax cuts introduced

in Chancellor Angela MERKEL's second term increased Germany's budget deficit to

3.3% in 2010. The Bundesbank expects the deficit to drop to about 2.5% in 2011,

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below the EU's 3% limit. A constitutional amendment approved in 2009 likewise

limits the federal government to structural deficits of no more than 0.35% of GDP

per annum as of 2016.

In addition, 1.5% of Germany’s GDP (2005 est.) is spent on military expenditures,

making it number 98 in comparison to the world


Consequently, Germany is currently facing the challenge of staving off a Greek

economic default. Greece is a member of the European Union and Euro Zone, thus a

Greek Default will have a profound effect on the price of the Euro, Germany’s

economy and the global markets.


The international financial crisis worsened conditions in Italy's labor market, with

unemployment rising from 6.2% in 2007 to 8.4% in 2010, but in the longer -term

Italy's low fertility rate and quota-driven immigration policies will increasingly

strain its economy. A rise in exports and investment driven by the global economic

recovery nevertheless helped the economy grow by about 1% in 2010 following a 5%

contraction in 2009. Italy has struggled to limit government spending, but its

exceedingly high public debt remains above 115% of GDP, and its fiscal deficit just

1.5% of GDP in 2007. It exceeded 5% in 2009 and 4% in 2010, as the costs of

servicing the country's debt rose.

In addition, 1.8% of Italy’s GDP (2005 est.) is spent on military expenditures,

making it number 81 in comparison to the world


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The Norwegian economy is a prosperous bastion of welfare capitalism, featuring a

combination of free market activity and government intervention. The government

controls key areas, such as the vital petroleum sector, through large -scale state-

majority-owned enterprises. The country is richly endowed with natural resources

such as petroleum, hydropower, fish, forests, and minerals and is highly dependent

on the petroleum sector, which accounts for nearly half of exports and over 30% of

state revenue. Norway is the world's second-largest gas exporter; its position as an

oil exporter has slipped to ninth-largest since production begun to decline. Norway

opted to stay out of the EU during a referendum in November 1994; nonetheless, as a

member of the European Economic Area, it contributes sizably to the EU budget. In

anticipation of eventual declines in oil and gas production, Norway saves state

revenue from the petroleum sector in the world's second largest sovereign wealth

fund, valued at over $500 billion in 2010. After solid GDP growth in 2004 -07, the

economy slowed in 2008, and contracted in 2009, before returning to positive

growth in 2010.

In addition, 1.9% of Norway’s GDP (2005 est.) is spent on military expenditures,

making it number 75 in comparison to the world


Middle East Region

Even with the looming draw down of U.S. and Coalition forces in Iraq and

Afghanistan, the Middle East is still a hot spot. Terrorism is still active in the

region and as well as the recent uprising from Libya to Syria to Bahrain.

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The company opened an office in Riyadh, Saudi Arabia in 2008. Saudi Arabia is major player in

the region and ally to the U.S… Saudi Arabia has an oil-based economy with strong

government controls over major economic activities. It possesses about 20% of the

world's proven petroleum reserves, ranks as the largest exporter of petroleum, and

plays a leading role in OPEC. The petroleum sector accounts for roughly 80% of

budget revenues, 45% of GDP, and 90% of export earnings.

Saudi Arabia is encouraging the growth of the private sector in order to diversify its

economy and to employ more Saudi nationals. Diversification efforts are focusing on

power generation, telecommunications, natural gas exploration, and petrochemical

sectors. Almost 6 million foreign workers play an important ro le in the Saudi

economy, particularly in the oil and service sectors, while Riyadh is struggling to

reduce unemployment among its own nationals. Saudi officials are particularly

focused on employing its large youth population, which generally lacks the

education and technical skills the private sector needs. Riyadh has substantially

boosted spending on job training and education, most recently with the opening of

the King Abdallah University of Science and Technology, Saudi Arabia's first co-

educational university. As part of its effort to attract foreign investment, Saudi

Arabia acceded to the WTO (World Trade Organization) in December 2005 after

many years of negotiations. The government has begun establishing six "economic

cities" in different regions of the country to promote foreign investment and plans to

spend $373 billion between 2010 and 2014 on social development and infrastructure

projects to advance Saudi Arabia's economic development.

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Saudi Arabia boasts an impressive 10% of GDP (2005 est.) spending on military

expenditures. Making it number 2 in comparison to the world.



The Australian economy grew for 17 consecutive years before the global financial

crisis. Subsequently, the Rudd government introduced a fiscal stimulus package

worth over US$50 billion to offset the effect of the slowing world economy, while

the Reserve Bank of Australia cut interest rates to historic lows. These policies and

continued demand for commodities, especially from China helped the Australian

economy rebound after just one quarter of negative growth. The economy grew by

1.2% during 2009 and by 3.3% in 2010, the best performance in the OECD.

Unemployment, originally expected to reach 8-10%, peaked at 5.7% in late 2009 and

fell to 5.1% in 2010. As a result of an improved economy, the budget deficit is

expected to peak below 4.2% of GDP and the government could return to budget

surpluses as early as 2015. Australia was one of the first advanced economies to

raise interest rates, with seven rate hikes between October 2009 and November 2010.

The Gillard government is focused on raising Australia's economic productivity to

ensure the sustainability of growth, and continues to manage the symbiotic, but

sometimes tense, economic relationship with China. Australia is engaged in the

Trans-Pacific Partnership talks and ongoing free trade agreement negotiations with

China, Japan, and Korea.

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In addition, 3% of Australia’s GDP (2009) is spent on military expenditures,

making it number 45 in comparison to the world



In 2010, the Indian economy rebounded robustly from the global financial crisis in

large part because of strong domestic demand and growth exceeded 8% year -on-year

in real terms. Merchandise exports, which account for about 15% of GDP, returned

to pre-financial crisis levels. An industrial expansion and high food prices, resulting

from the combined effects of the weak 2009 monsoon and inefficiencies in the

government's food distribution system, fueled inflation which peaked at about 11%

in the first half of 2010, but has gradually decreased to single digits following a

series of central bank interest rate hikes.

Consequently, in 2010, New Delhi reduced subsidies for fuel and fertilizers, sold a

small percentage of its shares in some state-owned enterprises and auctioned off

rights to radio bandwidth for 3G telecommunications in part to lower the

government's deficit. The Indian Government seeks to hold its budget deficit to 5.5%

of GDP in FY 2010-11, down from 6.8% in the previous fiscal year. India's long

term challenges include widespread poverty, inadequate physical and social

infrastructure, limited non-agricultural employment opportunities, insufficient

access to quality basic and higher education, and accommodating rural -to-urban


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In addition, 2.5% of India’s GDP (2006) is spent on military expenditures, making it

number 62 in comparison to the world (


4. Technological

a. Research & Development Budget

No data is currently available for 2010; however, form the data below in 2009, Northrop

Grumman spent $610 million on research and development.


b. Technology importance and technology areas of focus

The U.S.'s security depends upon sophisticated space systems, microelectronics and aircraft

avionics technologies developed, designed and integrated by Northrop Grumman Aerospace

Systems. Advanced technologies are Northrop Grumman’s specialty. Since the company's

inception over 50 years ago, when President Eisenhower asked Northrop Grumman to manage

what was then the nation's highest priority program, the ICBM or Inter-continental Ballistic

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Missile; Northrop Grumman has used its unique technological capabilities to solve the nation's

toughest problems. Presently, it is directing its technologies toward four primary applications:

National security, such as ISR (intelligence, surveillance and reconnaissance)

Laser weapons for missile defense, from understanding the basic phenomenology

to integrating advanced sensor systems to detect, track and defeat enemy targets

Civil space, such as environmental monitoring and space science

Software-defined radios

Fulfilling each of these critical mission areas and preparing to address our nation's future needs

depends on talent and technology that span every possible scientific and engineering discipline




Spacecraft platforms and enabling technologies

Systems Engineering

Sensors and instruments



c. Patents

Aerospace System's patents and trade secrets contribute strongly to the assets and capabilities of

Northrop Grumman, which now has the second largest aerospace company patent portfolio in the

world. Northrop Grumman’s commitment to basic technology and product inventions has

resulted in an extensive patent portfolio and international recognition of its leading edge

technology. The United States Patent Office issues approximately 100 patents per year in the

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U.S. to Aerospace Systems; a similar number of foreign patents are issued annually to protect its

intellectual property internationally. To date, three thousand patents have been issued worldwide

for inventions in the following major technical categories:



Spacecraft Structures

Space Sensors

Satellite Communications


Microwave Electronics and Antennas

Aerospace System's shares its technology with the world by licensing it to commercial entities

and through donations to charitable organizations. For example, Northrop Grumman licensed its

hetero-junction bipolar transistor (HBT) technology, which enabled more efficient consumer cell

phone transmitters and longer battery life. Northrop Grumman’s donation of intellectual property

and equipment to University of Central Florida’s College of Optics could enable the next

generation semiconductor manufacturing process called extreme ultraviolet (EUV) lithography.


5. Legal / Political

a. Legal

As customary, any legal engagements that Northrop Grumman is currently evolved in are not

likely to be public information. However, according to their 2010 Annual report, it states that

the company is subject to a range of claims, lawsuits, environmental and income tax matters, and

administrative proceedings that arise in the ordinary course of business. Estimating liabilities and

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costs associated with these matters requires judgment and assessment based upon professional

knowledge and experience of management and the company’s internal and external legal

counsel. In accordance with its practices relating to accounting for contingencies, Northrop

Grumman records amounts as charges to earnings after taking into consideration the facts and

circumstances of each matter known to us, including any settlement offers, and determine that it

is probable that a liability has been incurred and the amount of the loss can be reasonably

estimated. The ultimate resolution of any such exposure to Northrop Grumman may vary from

earlier estimates as further facts and circumstances become known. When a range of costs is

possible and no amount within that range is a better estimate than another, it records the

minimum amount of the range.

It is Northrop Grumman’s assessment that based on the information available that any such

proceedings will individually, or in the aggregate, have a no material adverse effect on its

financial position, results of operations, or cash flows

b. Protect intellectual property

Northrop Grumman has developed an intellectual property booklet that outlines the regulations

regarding such topic and has instituted an employee intellectual property agreement form to

ensure protection (see Appendix B, Intellectual Property Booklet, an Appendix C, Employee

Intellectual Property Agreement).

b. Government regulations

Northrop Grumman must obtain licenses and authorizations from various US government

agencies to sell its products outside the US. For instance, the US Department of State must notify

Congress at least 15-60 days, depending on the size and location of the sale, prior to authorizing

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certain sales of defense equipment and services to foreign governments (Northrop Grumman

SWOT analysis, Datamonitor, Aug 2010).

6. Social

a. Environmental

Northrop Grumman’s Environmental, Health & Safety (EHS) organization is heading the

company’s efforts to provide a safe and healthy workplace for its employees, and ensure that its

business activities are conducted in an environmentally responsible manner, thus preserving

natural resources and minimizing adverse impacts on the environment.

The greeNG Program “greeNG” is the company’s comprehensive company-wide program that is

driving improved, proactive and strategic actions that mitigate its environmental impact while

enhancing its sustainability practices. The program supports Northrop Grumman’s five-year goal

to reduce greenhouse gas (GHG) emissions and its commitment to sustainability objectives in its

water usage and minimization of solid-waste generation.

The greeNG program includes key strategic initiatives:

1. Improved measurement and transparency of key sustainability metrics.

2. A five-year plan to reduce it environmental impact.

3. Engagement with its employees.

4. Incorporation of the environment in key business processes and design decisions.

5. Engagement with key stakeholders for mutually beneficial environmental improvement

(NGOs, local communities, universities, government, etc.).

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Since its inception in 2008, the greeNG program has helped Northrop Grumman make

considerable strides. It improved its Carbon Disclosure Project score by 62 percent in 2010.

Northrop Grumman went from No. 335 to No. 173 in Newsweek magazine’s 2010

comprehensive environmental ranking of the 500 largest businesses. This is the biggest one-year

improvement among its peers. This improved score represents major progress in both

transparency and its policy commitments. Computerworld magazine ranked Northrop Grumman

as one of the Top 12 Green IT organizations in 2010


b. Company’s charitable initiatives

Northrop Grumman strives to be a community partner of choice. Through dynamic partnerships,

Northrop Grumman’s philanthropy programs help to address the challenges facing the nation and

local communities and strive to meet the diverse needs of the people of those communities. To

make the most effective use of its resources and expertise, Northrop Grumman has identified

priority issues and key initiatives for investment in local communities through the Northrop

Grumman Corporate Contributions program.

Its main focus is science, technology, engineering and mathematics (STEM) education and its

partners with local organizations that provide unique programming to inspire the next generation

of scientists, engineers and technicians.

Aid to Higher Education grants enhance STEM programs and contribute to activities that support

its relationships with college and university partners. These grants provide funding for

scholarships, student organizations and STEM programs and projects.

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The Northrop Grumman Foundation is committed to supporting unique, diverse and sustainable

national-level STEM programming. Additionally, it supports its employee’s contributions to

qualified educational institutions through the Northrop Grumman Foundation Matching Gifts for

Education program.

It also provides support to programs that support troops and veterans, health and human services

and the environment. During times of national disaster, Northrop Grumman often provides

funding to organizations that are responding to local needs.

Northrop Grumman provides an opportunity for its employees to support their communities and

the issues they care about through the Employees Charity Organization of Northrop Grumman

(ECHO) (


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External Analysis of Northrop Grumman Summary

SWOT Analysis

The external analysis or macro-environment consists of the broad trends and patterns in the

nation and world beyond a company. These patterns and trends that highly influence the

customer and the company are based on five aspects of the environment: economic,

political/legal, technological, socio-cultural, and demographic. The following is a SWOT

Analysis of the external influences on Northrop Grumman (focusing on Opportunities and

Threats) from the data collected in regards to the external analysis of Northrop Grumman:

Opportunities Threats

Civil infrastructure solution development Weak European Economy

Postal solutions for the U.S. Postal



1. Civil infrastructure solution development

With the uncertainty of the global market and the drawdown of U.S. and coalition forces in Iraq

and Afghanistan is cause for Northrop Grumman to seek new business opportunities. There is

still a need for infrastructure development in many of the countries around the world, especially

India, a newly developed economic nation or BRIC (Brazil, Russia, India and China) Nation and

Northrop Grumman partner.

A small, but significant portion of its business is devoted to state and local government

information technology (IT) infrastructure solutions. Without information technology civil

infrastructure cannot function efficiently and Northrop Grumman is a leading provider of IT

infrastructure managed services and outsourcing. Northrop Grumman provides public and

private sector organizations with an integrated suite of managed IT services and outsourcing that

supports the total life-cycle of its customers IT infrastructure, from planning and design, to

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implementation, operations, security, and maintenance. Northrop Grumman can design, deploy,

and operate their clients entire IT infrastructure, including networks, servers, service desks,

desktop systems, mobile devices, peripherals, business systems, application development, and

more. Northrop Grumman can support IT solutions for a nation’s civil sectors such as: Criminal

Justice, Human Services, Public Health, Public Safety, Secure Wireless Communications, and


An example of its proven experience helping state and local governments and agencies

modernize and transform their IT operations, include the city of Indianapolis/Marion County,

San Diego County, and the Commonwealth of Virginia.


2. Postal solutions for the U.S. Postal Service

According to the May 2011article in Bloomberg Businessweek entitled The U.S. Postal Service

Nears Collapse, the U.S. Postal Service is failing and on the verge of collapse. The U.S. Postal

Service has 571,566 full-time workers, making it the country's second-largest civilian employer

after Wal-Mart Stores. It has 31,871 post offices, more than the combined domestic retail outlets

of Wal-Mart, Starbucks and McDonald's. It operates six days a week delivering an average of

563 million pieces of mail, which is 40 percent of the entire world's volume at a price of a 44¢

stamp. Postal service executives proudly note that if it were a private company, it would be No.

29 on the Fortune 500 list. Last year its revenues were $67 billion, however its expenses were

even greater.

The problem with U.S. Postal Service is that it relies on first-class mail to fund most of its

operations, but first-class mail volume is steadily declining. In 2005, it fell below junk mail for

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the first time. This was a significant milestone. The U.S. Postal Service needs three pieces of

junk mail to replace the profit of a vanished stamp-bearing letter.

Northrop Grumman owns and operates SOLYSTIC, postal solutions company based in France

that has been designing and installing postal sorting solutions throughout the world for 60 years.

SOLYSTIC is major player in the postal sorting market and has built its reputation as an industry

leader in the field of mail sorting machines and character recognition technology. It has supplied

post handling systems in 25-countries on all five continents.

An opportunity would be for Northrop Grumman to develop a postal solution in the form of

electronic mail. This idea was actually proposed by a fellow capstone classmate in his SWOT

analysis of the U.S. Postal Services. He stated that U.S. Postal Service could reduce the cost it

incurs on delivering junk mail by delivering it threw the low cost medium of email. Northrop

Grumman is capable of developing this solution with its information systems capabilities and



1. Weak European Economy

The economy’s that comprise the European Union (EU), from Britain to Germany, have been hit

particularly hard due to the 2008 Global Financial Crisis. Each country has suffered similar

economic problems such as declining home prices, high consumer debt and raising

public deficits and debt levels. Several EU nations have been forced to implement

austerity measures that included reducing government spending in order to lower

their budget deficit. It is likely that each nation’s minister of finance or treasury

department equivalent will make cuts in its budget that will include government

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welfare and retirement, health care, and military spending just to name a few. To

look at the impact of government austerity measures would be to take military

spending as an example. The percentages of military expenditures for each of the

countries that Northrop Grumman conducts bus iness with ranged for 1%to3% based

on GDP that was stated in the data above. According to Trading, as

of Dec 2010, the United Kingdom’s GDP was 2,246.08 Trillion Pounds


If the UK currently spends approximately 2.6% of its GDP on military expenditures

which equates to £58,398,080,000 and decides to reduce military expenditures to

2.5% the .1% reduction would equates to a £2.2 billion loss in potential revenue for

Northrop Grumman. According, the current Dollar to Pound

exchange rate is1 USD = 0.6352 GBP. Therefore, £2,200,000,000 British Pound =

$3,463,476,070.52 U.S. Dollar (


Demographically, Northrop Grumman’s target market is strictly government and commercial

agencies. Internationally, Northrop Grumman is very will spread out and strategically positioned.

This allows it to service its customers, while reaching new emerging markets. Economically,

Northrop Grumman must understand the economic on-goings in each of the nations it operates.

Economic conditions of its partner nations are the external forces that can and will effect

Northrop Grumman’s business operations. Technology wise, Northrop Grumman develops many

of the Aerospace & Defense Technology Industries’ most sophisticated and innovative products.

It continues to maintain that level of quality through its re-investment in research and

development and patents. Legally, Northrop Grumman does not disclose its legal proceedings.

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However, based on the information it does follow the rule of law.Socially, Northrop Grumman’s

environment initiatives have benefited both the company and the environment. The initiatives

have reduced business operation’s impacts on the environment, while reducing company waste.

In addition, its charitable initiatives have improved the quality of life in the community from

education to disaster relief.

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Competitive Analysis of Northrop Grumman

1. Porter’s Five Forces Analysis

Porter's Five Forces is a framework for industry analysis and business strategy development

formed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial

Organization (IO) economics to derive five forces that determine the competitive intensity and

attractiveness of a market. They consist of the following forces that affect a company’s ability to

serve its customers and make a profit:


a. Threat of new entrants

The U.S. Aerospace & Defense Technology Industry is a closed-nit market with each company

within the industry possessing decades of established experience. Thus, making it difficult for a

newly established defense company enter the market. However, the U.S. Defense market is

susceptible to new entrants from established foreign defense contractors, for example, France’s

Airbus. Airbus is one of the world’s leading manufacturers of commercial jetliners and military

airlifters, having evolved during the past 40 years on the vision, innovation and passion of its


According to a November 6, 2009 article in Reuters, Airbus carried out its maiden flight of a

new freight plane that could mark its entry into plane assembly in the United States, if it wins an

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epic contest with Boeing over refueling planes. The Airbus A330-200F is the freight version of

the European plane maker’s mid-sized passenger jet and aims to capture a larger share of a civil

air cargo market dominated by Boeing. Airbus said it will build the A330 civil freighters next

alongside an assembly line for military tankers that would be located in Alabama, if it wins the

Pentagon contract. (

b. Threat of substitute products

It is unlikely that substitute products will ever find its way into the U.S. Aerospace and Defense

Industry. Even if new entrants like Airbus would not manufacture and sell cheap and low-

quality substitute products to the U.S. Government or other government and commercial

agencies. The clients of Defense companies are specific in the products they are requesting.

Their clients expect those products to perform in the manner to which those products where

designed to do.

c. Bargaining power of customers

As stated in the weakness portion of the SWOT Analysis of the Internal Analysis of Northrop

Grumman, Northrop Grumman’s dependence on the U.S. Government makes up 92% of its

business. This creates a tremendous bargaining power for the U.S. Government since the

government can cancel contracts at anytime creating loss revenue that would make it difficult for

Northrop Grumman to recoup. Also, the U.S. Government is free to solicit government contracts

to any of Northrop Grumman’s competitors. Thus, this bargaining power forces all the defense

companies competing for government contracts to submit a bid proposal for consideration.

Another burden is that Northrop Grumman must obtain licenses and authorization from the U.S.

government to sell its products outside the U.S... Economists term this industry relationship as a

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monopsony. Monopsony is a market in which there are many suppliers and one buyer. In a

monopsony, the buyer sets the price.

d. Bargaining power of suppliers

One can look at the bargaining power of suppliers in two ways: defense companies as the

supplier and the U.S. Government as the buyer, and the supply companies that supply raw

material and technical parts to the defense companies as the buyers. For the defense companies

to U.S. Government supplier relationship, it is clear as stated above that the supplier’s bargaining

power is low.

However, the bargaining power of suppliers to defense companies is quite different. Northrop

Grumman utilized many suppliers from steel to chip manufacturing firms (see Appendix D,

Northrop Grumman Suppliers). Therefore, Northrop Grumman has options when acquiring

materials to build its products.

On the other hand, supply chains are susceptible to external forces. Northrop Grumman’s

suppliers may delay or discontinue delivery of materials due to legal issues, employee strikes, or

shortages of raw materials due to natural disasters are but a few external factors that place

Northrop Grumman at the mercy of its suppliers. A prime example of external forces and supply

chain is to look at Apple’s release of the iPad 2 on the very same day a 9.0 earthquake rocked

Japan, one of the centers of NAND (type of flash memory) flash production. According to

analyst Jim Handy at Objective Analysis Semiconductor Market Research, he stated in an article

published on by David Morgenstern that “a number of Fujitsu and Toshiba

manufacturing sites are located near the earthquake epicenter. In addition, Tokyo, Kobe and

other centers are located on the east coast of Japan.” Jim Handy further stated that “Over 40

percent of the world’s NAND flash and roughly 15 percent of the world’s DRAM are

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manufactured in Japan. Japan is a significant source of chips to support consumer electronics

devices. A two-week shutdown would remove from production a sizable share of each of these.

It doesn’t take a large production decrease to cause prices to increase dramatically. Objective

Analysis anticipates phenomenal price swings and large near-term shortages as a result of this

earthquake. Demand will be impacted as well since many electronics manufacturers are in Japan,

and their consumption of semiconductors will be halted until earthquake damage is repaired.”

Apple NAND suppliers are not all in Japan according to iSuppli. Apple is supplied by Toshiba

and Samsung as well as other vendors.

The article further states that Apple primarily purchases flash memory from “top flight” vendors,

such as Samsung and Toshiba. Most of Apple’s DRAM comes from Korean vendors and would

be unaffected. The article concludes that everyone else, big and small will feel the pinch more

than Apple; way more (, How will Japan earthquake affect Apple's iPad

supply chain?).

In conclusion, the bargaining power of Northrop Grumman’s suppliers is both strong and weak.

It is weak in the fact that what conspires in its supplier’s environment will effect Northrop

Grumman. It is strong in the fact that Northrop Grumman can select from multiple suppliers,

thus mitigating any risk due to external factors. Furthermore, Northrop Grumman is in a position

to set conditions and prices for the production material being ordered.

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e. Competitors rivalry within an industry

The Northrop Grumman has determined that these companies provide a reasonable and relevant

comparison of market data. The target industry peer group consists of the following 11


United Technologies Corp. The Boeing Co. The Dow Chemical Co. Raytheon Co.

Lockheed Martin Corp. Johnson & Johnson General Electric Co. Alcoa, Inc.

E. I. du Pont de Nemours & Co. Honeywell International General Dynamics Corp.

Of the 11 companies Northrop Grumman recognizes six core competitors with which it competes

for executive talent: Boeing, General Dynamics, Honeywell, Lockheed Martin, Raytheon and

United Technologies



2. Internal analysis of Northrop Grumman’s competitors

The following is an abbreviated internal analysis of the four major core competitors selected

from its 11 target industry peer group in terms of the top four in sales revenue and how they

compare to Northrop Grumman: The Boeing Co., Lockheed Martin, and General Dynamics. The

purpose of this analysis is to expound on the competitors rivalry within an industry of Porter’s

Five Forces framework.

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The Boeing Co.

a. Overview

The Boeing Co. headquartered in Chicago, an aerospace firm that employs more than 165,000

people across the United States and in 70 countries. The company has four principal segments:

Commercial Airplanes, which develops, produces and markets commercial jet aircraft and

provides related support services to the commercial airline industry; Boeing Military Aircraft,

Network & Space Systems, and Global Services & Support, which comprise Boeing Defense,

Space & Security business segment, involves the research, development, production,

modification and support of products and related systems such as global strike systems, global

mobility systems, airborne surveillance and reconnaissance aircraft, and network and tactical

systems; and Boeing Capital Corporation, which provides financing services. The Boeing

Company Shared Services Group, or SSG, provides the company's business segments and

Corporate Offices with innovative and effective common services that support the competitive

design and manufacture of aerospace and defense products.



b. Capabilities

Boeing Commercial Airplanes business segement is comprises of five airplane programs: VIP-

derivative airplanes, extensive fabrication and assembly facilities, and a global customer

support organization. It is committed to being the leader in commercial aviation by offering

airplanes and services that deliver superior design, efficiency and value to customers around the

world. There are more than 12,100 Boeing commercial jetliners in service, flying passengers

and freight more efficiently than competing models in the market. Boeing Commercial

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Airplanes offers a family of technologically advanced airplanes, including one that can seat

more than 500 and another that boasts the longest range in the world, at more than 9,300

nautical miles (14,966 km). Meanwhile, Boeing Commercial Airplanes and its global network

of suppliers are hard at work building the airplane of tomorrow, a next-generation jet that will

set the standard for fuel-efficiency and passenger comfort. Boeing Commercial Airplanes

employs about 60,000 people under the leadership of President and CEO James (Jim) F.

Albaugh. The business segments's revenue in 2009 was $34 billion and has operations in more

than a dozen cities and countries (

Boeing Defense, Space & Security includes tactical and airlift aircraft, missiles, unmanned

airborne systems, and surveillance and engagement programs, which combines manned and

unmanned airborne capabilities, intelligence and security systems, communications architectures

and extensive large-scale integration expertise across several diverse business areas. A $32

billion business with 64,000 employees worldwide, Defense, Space & Security's strategy is to

understand the enduring needs of customers and provide capability-based solutions to meet their

rapidly evolving requirements. The strategy includes understanding the art of using current and

emerging technologies to improve the capabilities of existing products and deliver new solutions.

Boeing Defense, Space & Security's success will continue to be driven by its ability to provide

customers with the right solutions at the right time and the right cost. To effectively address

future evolving requirements for capability-driven solutions, the business is organized around

capabilities to further improve execution, reduce organizational complexity and improve

competitiveness, helping to better serve customers and compete for and captures new business.


Page 75: Analysis of Northrop Grumman


Boeing Capital Corporation is a global provider of innovative financing solutions. Its primary

mission is to support the other Boeing business segments by arranging, structuring and/or

providing financing to assist in the sale and delivery of Boeing products and services. A wholly

owned subsidiary of The Boeing Company, Boeing Capital provides comprehensive customer

financing support, primarily utilizing third-party financing, while aggressively managing risk and

delivering strong financial performance (

The Boeing Company Shared Services Group, or SSG, provides the company's business units

and Corporate Offices with innovative and effective common services that support the

competitive design and manufacture of aerospace and defense products. The group provides a

broad range of services worldwide, including facilities services, employee benefits and services,

recruitment, wellness programs, security, fire protection, site operations, disaster preparedness,

construction, reclamation, conservation programs, virtual workplace, creative services,

transportation, business continuity and the purchase of all non-production goods and services. It

also offers comprehensive travel services to Boeing employees. In addition, Shared Services

Group manages the sale and acquisition of all leased and owned property. By integrating

services, Shared Services Group delivers greater value, creates "lean" processes and operations,

leverages buying power and simplifies access to services for all of Boeing


c. Types of skills

What skills Boeing usually looks for in its prospective employees are:

Engineering Engineering technology Computer science Mathematics Business

In addition, Boeing looks for employees who posses strong sense of teamwork and a good

understanding of one or more of the following disciplines:

Engineering science fundamentals Mathematics, including statistics

Page 76: Analysis of Northrop Grumman


Physical and life sciences Information technology (beyond basic computer literacy)

Design and manufacturing processes Economics Business

Prospective employees also should be able to think critically and creatively, and work

independently and cooperatively. Other qualities Boeing looks for include the ability to adapt to

rapid or major change, a desire for lifelong learning, the highest ethical standards and excellent

communication skills.

d. Market share

As of December 2010, Boeing currently possesses 36.6% or $64.97 billion of the Aerospace and

Defense Security market share. Please refer to the market share pie chart in the market section of

the internal analysis of Northrop Grumman.

e. Financial reports (Sales, debt and stock prices)

i. Sales

Years ended December 31, 2010 2009 2008

Commercial Airplanes $31,834 $34,051 $28,263

Boeing Defense, Space & Security 31,943 33,661 32,047

Boeing Capital Corporation 639 660 703

Other segment 138 165 567

Unallocated items and eliminations (248) (256) (671)

Total $64,306 $68,281 $60,909

Page 77: Analysis of Northrop Grumman


ii. Debt Obligations


than 1 1−3 3−5 After 5

(In millions) Total years years year years

Long−term debt $ 12,253 $ 876 $ 3,510 $ 2,103 $ 5,764

Interest on debt 6,990 622 1,025 773 4,570

Pension and other postretirement

cash requirements 20,638 632 1,622 6,643 11,741

Capital lease obligations 190 63 97 30 0

Operating lease obligations 1,159 217 280 164 498

Purchase obligations not recorded

on the Consolidated Statements of

Financial Position 104,775 34,572 40,197 20,442 9,564

Purchase obligations recorded

on the Consolidated Statements of

Financial Position 12,676 12,345 331 0 0

Total contractual obligations $158,681 $49,327 $47,062 $30,155 $32,137

(The Boeing Company’s Annual Report. Form 10-K, 010

Page 78: Analysis of Northrop Grumman


iii. Stock prices

Boeing Company (The) Common Stock (NYSE: BA)

After hours: 57.65 1.49 (2.52%) 4:42PM EDT 4 October, 2010. The stock has been trading

between $ 56.01 and $80.6527during a 52 week range. (

Page 79: Analysis of Northrop Grumman


Lockheed Martin

a. Overview

Lockheed Martin headquartered in Bethesda, Maryland in the Washington D.C. Metropolitan

Area is a security company that is principally engaged in the research, design, development,

manufacture, combination, and sustainment of systems and products. Lockheed Martin also

provides a range of management, engineering, technical, scientific, logistic, and information

services. It serves both domestic and international customers with products and services that

have defense, civil, and commercial applications, with its principal customers being agencies of

the U.S. Government. The company operates in four principal business segments: Aeronautics;

Electronic Systems; Information Systems & Global Solutions; and Space Systems.


a. Capabilities

Lockheed Martin specializes in providing solutions to the most complex and challenging

technological issues imaginable. To address these issues, it has built a company with

unparalleled technological depth. It possesses the tools and technologies to solve virtually any

problem and to provide the systems and services to its customers needs in order to carry out their

vital missions.

The Lockheed Martin team has the largest concentration of software expertise you'll find

anywhere, and its clients tell them that they choose Lockheed Martin because of its experience

and expertise. Lockheed Martin technology with engineering discipline to meet their tough

business challenges, leads to its total commitment to its success.

This is an abbreviated list of the areas in which Lockheed Martin provides expertise:

Page 80: Analysis of Northrop Grumman


Air power Missiles & Missile Defense Distribution Systems Radar Systems

Homeland Security Information Superiority Space Systems Information Technology

Technology Research Training & Simulation Surveillance & Fire Control

Air Traffic & Transportation Management

Here's a snapshot of how Lockheed Martin implements its capabilities to work for its customers:

Its ground systems handle more bits of data per day than all of the U.S. cable companies


It provides the Pentagon's Network Infrastructure Services Agency with the computer

network that connects 25,000 of our top policy and military leaders

It developed the Theater Battle Management Core Systems, which allows war-fighters to

see a complete picture of air operations in battle. This system was deployed in

Afghanistan and Iraq.

Its air traffic management systems manage and control more than 60% of the world's air


It developed the recognition technologies and database search algorithms that enable the

FBI to match a fingerprint against 420 million prints in just minutes, including the one

that solved the infamous D.C. sniper case.

Its postal systems provide automated scanning, sorting and now biochemical detection

systems for the U.S. Postal Service.

Its simulators train truck drivers to drive trucks, pilots to fly aircraft, and astronauts to

work in space (

b. Types of skills

Like its competitors, Lockheed Martin is a science and technology based industry, thus is

seeking prospective employees with skills such as:

Page 81: Analysis of Northrop Grumman


Engineering Engineering technology Computer science

Information Systems Mathematics Aircraft & Ship Manufacturing

In addition, Lockheed Martin seeks prospective employees with knowledge in business skills

such as:

Business Development Business Management Program Management

Quality Assurance Supply Chain

c. Market Share

As of December 2010, Lockheed Martin currently possesses 26.1% or $46.37 billion of the

Aerospace and Defense Security market share. Please refer to the market share pie chart in the

market section of the internal analysis of Northrop Grumman.

d. Financial reports (Sales, debt and stock prices)

i. Sales

(In millions) 2010 2009 2008

Net Sales

Aeronautics $13,235 $12,201 $11,473

Electronic Systems 14,363 13,532 12,803

Information Systems & Global Solutions 9,959 9,608 9,069

Space Systems 8,246 8,654 8,027

Total $45,803 $43,995 $41,372

Operating Profit

Aeronautics $ 1,502 $1,577 $ 1,433

Electronic Systems 1,712 1,660 1,583

Information Systems & Global Solutions 890 895 919

Space Systems 972 972 953

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Total business segments $ 5,076 5,104 4,888

VESP and other charges (220)

Other unallocated Corporate income (expense), net (759) (689) 161

Total $ 4,097 4,415 5,049

ii. Debt Obligations

Lockheed Martin’s long−term debt is primarily in the form of publicly issued notes and

debentures, as follows:

(In millions) Interest Rate 2010 2009

Notes due 3/14/2013 4.12% $ 500 $500

Debentures due 4/15/2013 7.38% 150 150

Debentures due 5/1/2016 7.65% 451 600

Notes due 11/15/2019 4.25% 900 900

Debentures due 9/15/2023 7.00% 200 200

Notes due 6/15/2024 8.38% 167 167

Debentures due 6/15/2025 7.63% 150 150

Debentures due 5/1/2026 7.75% 275 423

Debentures due 12/1/2029 8.50% 206 317

Debentures due 5/1/2036 7.20% 97 300

Notes due 9/1/2036 6.15% 1,079 1,079

Notes due 11/15/2039 5.50% 600 600

Notes due 6/1/2040 5.72% 728

Unamortized discount N/A (505) (351)

Other Various 21 17

Page 83: Analysis of Northrop Grumman


$5,019 $5,05

(Lockheed Martin’s Annual Report. Form 10-K, 010

iii. Stocks

Lockheed Martin Corporation Com (NYSE: LMT )

After Hours: 72.70 0.00 (0.00%) 6:11PM EDT4 October, 2010. The stock has been trading

between $ 66.36 and $82.4327during a 52 week range. (

Page 84: Analysis of Northrop Grumman


General Dynamics

a. Overview

General Dynamics headquartered in West Falls Church, Virginia, operates through four business

groups: Aerospace, which produces Gulfstream aircraft, performs aircraft outfitting and

refurbishments for other manufacturers, and provides aircraft services; Combat Systems, which

designs and manufactures combat vehicles, weapons systems and munitions; Marine Systems,

which designs and constructs surface ships and submarines; and Information Systems &

Technology, which provides communications and information technology products and

services. The company's primary customers are the U.S. military, other U.S. government

organizations, the armed forces of other nations, and corporate and individual buyers of business




b. Capabilities

Since 1997, General Dynamics has acquired more than 50 companies with revenue that has

grown from $4 billion to approximately $32 billion and a workforce that has increased from

29,000 to approximately 90,000 employees today (


General Dynamics is a market leader in the Aerospace and Defense Industry, providing products

and services designed to meet the needs of the most demanding customers. General Dynamics

operates in four business sectors, producing the following products:

Page 85: Analysis of Northrop Grumman



Jet Aviation Gulfstream

Combat Systems

Armament and Technical Products European Land Systems Land Systems

Ordnance and Tactical Systems

Information Systems and Technology

Advanced Information Systems Information Technology United Kingdom Limited

C4 Systems

Marine Systems

Bath Iron Works Electric Boat NASSCO (National Steel and Shipbuilding Company)


c. Type of skills

Like its competitors, General Dynamics is a science and technology based industry, thus it seeks

prospective employees with skills such as:

Engineering Engineering technology Computer science Mathematics Information Systems

Aircraft & Ship Manufacturing

In addition, General Dynamics seeks prospective employees with knowledge in business skills

such as:

Business Development Business Management Program Management

Quality Assurance Supply Chain

d. Market Share

As of December 2010, General Dynamics currently possesses 32.29% or $32.29 billion of the

Aerospace and Defense Security market share. Please refer to the market share pie chart in the

market section of the internal analysis of Northrop Grumman.

Page 86: Analysis of Northrop Grumman


e. Financial reports (Sales, debt and stock prices)

i. Sales

Year Ended December 31 2008 2009 2010 10

Revenues Revenues Revenues

Aerospace $ 5,512 $ 5,171 $ 5,299

Combat Systems 8,194 9,645 8,878

Marine Systems 5,556 6,363 6,677

Information Systems and Technology 10,038 10,802 11,612


Total $ 29,300 $ 31,981 $32,466

ii. Debt Obligations

The following tables present information about our contractual obligations and commercial

commitments on December 31, 2010:

Payments Due by Period

Total Less Than 1 1−3 4−5 More Than 5

Year Years Years Years

Long−term debt $ 3,620 $ 905 $ 1,240 $ 1,466 $ 9

Capital lease obligations 2 1 1 – –

Operating leases 914 187 259 151 317

Purchase obligations 22,460 11,218 6,468 2,762 2,012

Other long−term 14,516 2,247 2,172 1,759 8,338


$ 41,512 $ 14,558 $ 10,140 $ 6,138 $ 10,676

Page 87: Analysis of Northrop Grumman


(General Dynamics’s Annual Report. Form 10-K, 010

iii. Stocks

General Dynamics Corporation Co (NYSE: GD)

After Hours: 57.71 0.00 (0.00%) 4:26PM EDT 5 October, 2011

The stock has been trading between $53.95 and $78.27during a 52 week range.


Page 88: Analysis of Northrop Grumman


Competitive Analysis of Northrop Grumman Summary

SWOT Analysis

The competitors’ analysis is a face-to-face comparison of Northrop Grumman as an Aerospace &

Defense Technology Company and how it fairs with its competitors. The information collected

and analyzed from the Competitors Analysis, the following SWOT analysis provides Northrop

Grumman with what its strengths and weaknesses are in relation to its competitors:

Strengths over its competitors Weaknesses over its competitors

Broader capabilities than most of its


Does not possess an internal financial service


Financially stable Smaller market share

Centrally located to its primary customer


1. Broader capabilities than most of its competitors

Like all its competitors, Northrop Grumman also possesses an aerospace business sector.

Currently the aerospace market is dominated by Boeing. However, Northrop Grumman can

compete on par with Boeing in aircraft manufacturing. For example, Northrop Grumman

developed the highly successful B-2 Stealth Bomber. Boeing does possess a defense, space &

security business sector and performs well; however, they are an aircraft oriented manufacturer

which their sales revenue alone can attest to that fact. What differentiates Northrop Grumman is

that it has broader capabilities in producing products than just aircrafts. Northrop Grumman can

produce a wide assortment of products from its other two technology sectors: Electronic systems

and Information systems. Along with its Technical services sector to provide the support need

for those products. When Northrop Grumman acquired Litton Industries Inc., Newport News

Inc., and TRW Inc, then restructured its business sectors into the four it maintains today

(Aerospace systems, Electronic systems, Information systems and Technical services) gave it

Page 89: Analysis of Northrop Grumman


broader capabilities for its business performance. According to Northrop Grumman Space

Technology, Business Process Management, the acquisitions and restructuring made Northrop

Grumman No. 2 U.S. defense contractor behind Lockheed Martin Corporation. The following is

a comparison of sales of Northrop Grumman and Lockheed Martin by business sectors:

Northrop Grumman

Net Sales (In millions) 2010 2009 2008 Aeronautics $10,910 $10,419 $9,825 Electronic Systems $7,613 7,671 7,048 Information Systems $8,395 8,536 8,174 Technical Services $3,230 2,776 2,535 Total $30,148 $29,402 $27,582

Lockheed Martin

Net Sales (In millions) 2010 2009 2008

Aeronautics $13,235 $12,201 $11,473

Electronic Systems 14,363 13,532 12,803

Information Systems & Global Solutions 9,959 9,608 9,069

Space Systems 8,246 8,654 8,027

Total $45,803 $43,995 $41,372

2. Financial stability

Northrop Grumman, in terms of debt obligations, is more financially stable than the majority of

its major competitors.

The following is a debt obligation chart of the four major defense contractors based on a total

debt accumulated for the next five years:

Debt obligations in millions Northrop



Martin Boeing



$20,148 $5,019 $158,681 $41,512

Page 90: Analysis of Northrop Grumman


Northrop Grumman has a low debt obligation in comparison to its competitors. In addition, it has

the ability to generate cash if need be to pay off its debts. Its expected cash on hand at the

beginning of the year plus cash generated from operations and cash available under credit lines

will be sufficient in 2011 to service debt. Northrop Grumman has a committed $2 billion

revolving credit facility, with a maturity date of August 10, 2012, that can be accessed on a

same-day basis. It can also obtain additional capital to provide for long-term liquidity, if

necessary, from such sources as the public or private capital markets, the sale of assets, sale and

leaseback of operating assets, and leasing rather than purchasing new assets.

In comparison to Boeing, whose debt is at $158,681, also ran up an extensive bill and years of

delays for its new 787 Dreamliner passenger aircraft. According to the Christian Science

Monitor, Boeing already took a $2.5 billion in charges in 2009 on the program, and it owes

additional money to customers for the late deliveries



3. Centrally located to its primary client.

The Northrop Grumman corporate headquarters was previously in Los Angeles, California,

however, upon assuming the mantle of CEO on January 2010, Wes Bush moved the company to

Northern Virginia so executives could be closer to their federal customers (FORBES, 2011).

This move will allow Northrop Grumman to be more attentive to the needs of its government

cliental and compete on par with General Dynamics and Lockheed Martin who also have

corporate offices in the Washington D.C. Area.

Page 91: Analysis of Northrop Grumman



1. Does not possess an internal financial service sector

Out of all of Northrop Grumman’s top competitors mentioned above, Boeing possess is the only

one that possesses a financial service sector called Boeing Capital Corporation, which provides

financing services for its subsidiaries and customers. This gives Boeing a comparative

advantage over Northrop Grumman, because it allows Boeing to work directly with its clients

who need financial assistants in purchasing Boeing products. Also, in order to compete with

other financial leading institutions, Boeing can offer more attractive interest rates to its

customers, thus providing a one stop shopping experience. A good analogy is to take a Toyota

car dealership and Toyota Financial Services. The majority of banks will offer auto loans,

however, many Toyota dealerships are offering 0% financing for 36 months on some of its

selected models. In addition, having a financial service sector is an excellent way to generate

cash flow.

The following is the Boeing Capital Corporation’s revenue data from Boeing’s 2010 Annual

Report to the U.S. Security and Exchange Commission:

Dollars in millions

Years ended December 31 2010 2009 2008

Boeing Capital Corporation $ 639 $660 $703

2. Smaller market share

According to the U.S. Department of Commerce March 2011, the U.S. Aerospace & Defense

Industry estimated the value at $171 billion. Northrop Grumman possesses only 19.1% of the

market share. Its closest competitor Lockheed Martin possesses 26.1% of the market share with

Boeing commanding the largest piece of the pie with 36.6%. From a macro-level it makes the

Page 92: Analysis of Northrop Grumman


company look small, thus presents the image of a weak company who is easy pickings for bigger

company that is looking to swallow up another.


From the Porter’s Five Forces Analysis, it can be deduced that the U.S. Aerospace & Defense

Industry is an exclusive and intensely competitive market. Each company possesses relatively

the same business capabilities as the other, yet possessing a distinct business capability

advantage over the each other, while competing with each for business opportunities.

Northrop Grumman vs. its competition, Northrop Grumman may not possess an out-right

dominance of the industry. However, it is a versatile company. Its core capabilities in Aerospace

Systems, Electronic Systems, Information Systems, and Technical Services allows it to be

known as a defense company that excels in producing many products as opposed to Boeing who

is known as the dominant commercial and military aircraft manufacturer. There will always be a

need for aircraft that can provide air superiority and support roles, however, aircraft where

designed to have life-cycles of 30 years plus.

Because of the changing military climate and the global economy, Northrop Grumman is better

positioned to handle the needs of the war-fighter than its competitors. As long as terrorist

organizations and state sponsored terrorism continues, the future wars are going to be low-

intensity conflicts, while fighting an enemy that employs asymmetric warfare. In this battlefield,

products like satellite systems, surveillance and intelligence equipment, and electronic

communication systems are just a few of the products the war-fighter will need most in this


Page 93: Analysis of Northrop Grumman


Conclusions from the Internal, External and Competitive Analysis

The following responses for Core Competencies, Distinctive Competitive Advantages, Driving

Forces and Key Success Factors of Northrop Grumman were derived from the conclusions

drawn from the case analysis:

Core Competencies

Aerospace Systems

Electronic Systems

Information Systems

Technical Services

Distinctive Competitive Advantages

Possesses broader product capabilities than most of its competitors

Financially strong, allowing for opportunities to expand and invest

Driving Forces

Committed to being a global leader in the Aerospace & Defense Technology Industry

Providing quality& cost saving products, services and solutions for its customers

Key Success Factors

Their core competencies are aligned with the current and future needs of its customers

and future global security challenges

Their superior business processes made it a leading global security company providing

innovative systems, products and solutions in aerospace, electronics, information

systems, and technical services to government and commercial customers worldwide

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Strategies and Goals

This section of my case analysis will consist of my recommendations of future goals and

strategies for Northrop Grumman’s consideration. I will present five goals and five strategies. I

will then select three strategies to test and finally select one to implement.


Increase total sales revenue by 3% annually over the next five years

Increase market share by 8% in order to possess the 2nd largest market share of the U.S.

Aerospace and Defense Technology Industry within the next five years

Be a major provider of information technology (IT) infrastructure and postal service

solutions within the next five years

Possess your own financial services business sector within 10 years

Reduce employee turnover and union issues over the next five years


The following recommended strategies are not aligned with any specific goal from the ones

mentioned above. However, multiple strategies could answer more than one goal.

Develop new or update surveillance, intelligence and communication Defense Satellite

Technology systems capabilities

Acquire Raytheon Aerospace and Defense Company who already possess assets and

resources in aerospace technology

Engage in business-to-customer (C2C) marketing with local, state and national

government officials of emerging markets to promote Northrop Grumman’s information

technology (IT) infrastructure solutions capabilities

Sell or lease capital resources to achieve these goals

Page 95: Analysis of Northrop Grumman


Partner with an existing financial institution.

Testing Strategies

STRATEGY 1- Develop new or update surveillance, intelligence and communication

Defense Satellite Technology systems capabilities


1. Years in of

experience in

producing satellite


2. Holds patents in




3. Strengthens the

position of



4. High profit



1. Longer




1. Delays in



1. Minimal Costs. Do

not have to re-

invent the wheel,

just improve on the


STRATEGY 2-Acquire Raytheon Aerospace and Defense Company who already possess assets

and resources in aerospace technology


1. Years of

experience in


Aerospace &




2. Strengthens the

position of



3. Gains additional

capital resources


1. Costly venture. A

lot of capital has to

be raised

2. Acquisition

process is time


3. Will not see

immediate returns

on investment


1. U.S. Government

does not approve


2. Post-acquisition

integration failure


1. Adhere to


regulations on


2. Monetary loss

from research of


acquisition, if

acquisition fails

Page 96: Analysis of Northrop Grumman


STRATEGY 3-Sell or lease capital resources to achieve these goals


1. Quick way to

obtain cash


1. Loss of capital

resources that will

effect production


2. No potential



1. Receiving less than

market value for

sale of capital



1. Costs associated

with the marketing

and selling or

leasing of capital


Scoring method is based on a 1 to 3 rating scale. A score of 1is the best choice. A score of 3 is

the least desirable choice. The strategy that possesses the most pros over cons will receive the

highest rating score.

Strategy-1. Score 1 Strategy-2. Score 2 Strategy-3. Score 3


Of these three strategies selected, it is of my opinion that the best strategy to support the

recommended goals for Northrop Grumman is Strategy-1; develop new or update surveillance,

intelligence and communication Defense Satellite Technology systems capabilities.

Report GAO 09-325, recently released by the Government Accountability Office (GAO), stated

that some of the satellites that provide the signals that Global Positioning System (GPS) devices

need to operate are aging and approaching or exceeding the end of their service life cycles. GPS

uses range from providing personal driving directions to aiding critical military missions

requiring precision bombing capabilities could see its signal fade as early as next year when the

required satellites stop functioning, according to a Government Accountability Office report.

The U.S. currently has 31 GPS satellites in orbit, and 24 are needed to provide the high level of

accuracy and reliability we enjoy today. The GAO report places the probability of keeping a full,

24-satellite constellation operating as low as 80 percent by year 2011. GPS satellites have been

Page 97: Analysis of Northrop Grumman


outlasting their predicted service lives, so this is likely a worst-case scenario, thus recommending

more focused leadership, and higher budget priority for the GPS updates.

In addition, to other military satellites such as surveillance, communication and weather that are

aging, scientific satellites that monitor oceanic and climate conditions are facing the same


To implement this strategy:

1. Analyze the current conditions of satellites in orbit and prioritize work based on critical


2. Develop several new satellite systems solutions or select from current aerospace products as


3. Lobby the U.S. Congress. Stress to Congress the importance of satellite technology and the

need for new satellites or upgrades to existing ones. Present Northrop Grumman’s latest

satellite systems solutions.

Recent news

On May 9, 2011, The U.S. Air Force awarded the Northrop Grumman with a $372M Contract to

Develop EHF Satellite Communications Antenna for B-2 Bomber. The new antenna system now

under development by Northrop Grumman Corporation will enable the B-2 Spirit stealth bomber

to send and receive battlefield information securely by satellite up to 100 times faster than it can


According to NASA, who manages the program on behalf of NOAA (National Oceanic and

Atmospheric Administration) Northrop Grumman was awarded a $30 million contract which

will involve the manufacture, testing and delivery of the Advanced Technology Microwave

Sounder (ATMS), support instrument integration on the Joint Polar Satellite System (JPSS-1)

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which will carry the ATMS, and they will also provide launch and post-launch support for the

mission. The contract runs from 2011 through 2017.

Projected Financial Results

In the previous five years Northrop Grumman’s Aerospace business sector sales revenue grew

1% annually with the exception 2006 to 2007.

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It is mostly likely that Northrop Grumman’s Aerospace sector will continue to see a 1% annual

growth rate based on the previous 1% sales trend. However, has it acquires more contracts it

could see an increase from 1.2% to 1.4%.