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Northrop Grumman Corporation Sample Paper

Northrop Grumman Corporation

1.0 Organization History and Vision

Northrop Grumman Corporation, which is in the US is a key manufacturing company specializing in defense, commercial aerospace, information technology products and services as well as electronics. It was incorporated in January, 16th 2011 and its headquarters is in Los Angeles (Reuters, 2013. It was first created in 1939 under the name Northrop Aircraft, Inc., but in 1958, it was renamed to Corporation. The company, in 1994 changed its name to Northrop Grumman Corporation after acquisition of Grumman Corporation. Most of company operations are with the United States government, more specifically, the Department of Defense and Intelligence Community. Also, it conducts business with foreign governments as well as domestic and international customers (Amir, 2013). The visualization of the company is to be the most trusted technologies and systems supplies that guarantee sanctuary and liberty of the nation as well as that of cronies. As a leader in the field, the Corporation will continue defining the future of defense (Northrop Grumman, 2013).

2.0 Organizational Strengths and Weaknesses

2.1 Strategically Diversified Portfolio of Products and Revenue Sources

 

For the company, this is a major strength since reduced revenue from one section can be compensated easily by revenue from other sections; as such the liquidity position of the company is stable (Clawson, 2013). The company has 4 business segments which include electronic systems, aerospace systems, information systems and technical services. Manned and unmanned aircrafts, spacecraft, microelectronics and high laser systems are provided in the business segment. Intelligence systems, information services and systems as well as defense systems are provided in the information segment. Airspace management systems, communication systems, marine, navigation systems, air borne fire control radars and electronics as well as defense systems fall in the electronics segment. The last section which is technical services provides reconstitution, maintenance, logistics and training services. The last section is also the distinctive strength. A product portfolio that is diversified does not just offer market forces that are unfavorable through dispersal of business risks but makes it possible for the company to enjoy opportunities available across varying industries. In the same manner, diversification widens the revenue streams of the company (Knecht, 2014). Revenues from the 4 segments are also balanced adequately. These revenue flows are balanced and they reduce business risks and make it possible for the company to explore opportunities in existing and new markets.

2.2 Realignment of Business Segments

Image 2Realignment plays a significant role in the company as it substantially enhances the use of resources as well as improved customer support. The company has realigned it segments successfully in the last couple of years. For instance, in 2009, it changed the organizational structure through cutting down on its operating segments from 7 to 5. In the same duration, it also realigned part of its technical and logistics support programs. Also, it equally transferred its assets from electronic and information systems segments to technical services segment (Space Daily, 2013). The effort of realignment is seen as distinctive strength since it significantly strengthens the core competencies of the company in aircraft and electronic maintenance, repair and overhaul, training and simulation as well as life cycle simulation services. The efforts of reorganizations have also equally enhanced the alignment of the firm with core customers while improving the ability to win new business and program opportunities. Further, it has enhanced the cost competitiveness and overall performance of the company.

2.3 Heavy Dependence on a single customer for a Significant Portion of Business

The company is largely reliant on United States government for revenues. It supplies either directly or through subcontractors to American government as well as a couple of agencies. The revenues it gets from government include sales of foreign military accounts for over 90% of the total revenue. For instance, in 2009, 2010 and 201, it accounted for over 90.3%, 90.3% and 90.5% of the total revenues respectively. In the same manner, there was no single service or product offered by Northrop that contributed over 10% of the revenue over the same duration. The overreliance on government has proven to be a risk as it exposes the company to various regulations as well as congressional and defense approvals. What is more, there is also the risk that government might terminate contracts as a result of unforeseen circumstances. The business can also get exposed to material liability which can adversely affect its capacity to effectively compete with others. The organization also can minimize weakness through production of products that are tailor made for other agencies and private entities. For instance, given the reputation within the security sector, it can design electronic security systems as well as provide support solutions to the private security firms found throughout the US. In the same manner, it can use its abilities in the maintenance and manufacturing of aircraft to manufacture aircrafts, other parts as well as provide maintenance services to companies like Boeing.

2.4 Understanding of its Medical, Pension and Life Benefits

The company provides life, medical and pension benefits to employees. A large number of the retired and current employees of the company are covered under pension benefit and post-retirement plan. During the 2011 fiscal year, the pension forecasted obligation was standing at $ 24,129 million yet, fair value of the assets planned was just $ 21,340 million a representation of a deficit (Underfunding) of $24, 129 million, yet the planned fair value assets was only $21, 340 million a representation of a deficit (Underfunding) of $2,789 million. In that same year, the medical benefit and forecasted life obligation amounted to $ 1,289 million. The cost and medical expenses of pension linked to Northrop’s retirement benefit plans were based on numerous assumptions on the part of the company which included discount rates for future projection of rates and payments of return on the assets. The costs are likely to increase as a result of weak performance of financial markets reduction interest rates and investment decisions failing to achieve sufficient returns (The Brookings Institution, 2012). The obligations of underfunded pension are a weakness since the company is forced into remitting regular contributions of cash to the United States pension plan so it can bridge the gap existing between assets and obligations as the result of placing pressure on the liquidity position of the company. The most ideal way of minimizing the weakness is through freeing of benefit plans for current as well as retired employees. Under the approach, employees are not going to earn beyond a given date and this will stop growth of new obligations (Geisel, 2013).

3.0 Opportunities and Threats

3.1 A Robust Backlog of orders

The dimension that is within the general environment is referred as economic dimension. Its focus is on aspects of economic system with direct impact on the business segments of the company. This includes purchasing patterns, consumers’ purchasing powers and spending patterns. In this dimension, the specific force is increase in aerospace and defense spending. The total backlog for the company includes funded and unfunded backlog. Northrop’s total backlog for fiscal year 2011 was worth $ 39,515 million out of which fifty nine percent was expected to get converted to sales in the year 2012. U.S government orders inclusive of those made by foreign governments accounted for 87 percent of 2011 backlog. Such a backlog of strong orders provided the company with an opportunity since it indicated the services and products of the company are in high demand within the market. In the same manner, the company is also assured of stable revenues growth which can further enhance its position in the market.

3.2 Optimistic Outlook in the World’s Defense and Aerospace Sector

This comes from international and economic dimensions. The world’s aerospace and defense sectors, in the last couple of years have witnessed vigorous growth. Equally, the sector is projected to register steady growth in years ahead in terms of sales. The precise forces are increase in military spending, , international air traffic improvements and expansion of operations of commercial airlines especially after recession. It is projected that such forces will drive the growth of defense and aerospace sectors. According to Market Watch (2013), the aerospace and defense sector is expected, by 2015 to be worth $1,204.2 billion which is a representation of cumulative yearly growth rate of 2 percent from 2012 to 2015. This provides an opportunity for the company as it is among major players in contracting defense especially military aircrafts, information systems, surface ships, electronic systems and submarines. In the same line, the positive outlook offers growth for the company in the medium term and short term.

3.3 Highly Competitive Market

This is a threat that arises from the technological and international dimension of general environment. The major force is competitors. Northrop competes internationally across different sectors. Likewise, technological advancement has contributed to stiff competition with all players in the defense and aerospace attempting to come out as the best taking into consideration the field is technology intensive. The company also faces competition from international and domestic players such as Raytheon, BAE Systems, Lockheed Martin and Boeing. Some competitors have advanced their manufacturing, engineering and marketing capabilities as compared to those of Northrop. On top of this, the current consolidation of the world’s aerospace, defense and space industries has led to increased competition as well as reduced principal contractor numbers (SEC, 2013). The competition therefore is stiff for the company and it can affect the operations and revenue streams of the company negatively. With a large number of competitors aiming for the same contracts by governments, it is likely the revenues will decline.

3.4 Risk Arising from Fixed-Price Contractual Obligations

This stems from economic dimension of specific force and general environment of unexpected changes in price especially changes of raw materials rates like steel. A significant percentage of Northrop contracts with the United States government fall under fixed price contracts. These contacts have a specific scope of work for a fixed payment amount. For instance, in 2011, fixed contracts price accounted for 41 percent of the annual company revenues (SEC, 2013). Particularly, these contracts for work development are characterized by uncertainty and high risk. As such, cost estimates to complete the phase of development are far variable. Businesses are threatened due to failure in meeting contract deadline and this can result to additional company costs. This might also negatively impact the operation of the company due to extra costs.

4.0 Summary

4.1 Capitalizing on the Opportunities

With the company’s reputation as the most excellent repositories of sophisticated aerospace, information technologies and electronics on the globe, it can capitalize on opportunities that are offered by the universal environment. The company is supposed to make sure it puts into place enough capacity to clear backlogs as well as win customer confidence. Additionally, the contracts should be completed in time in order to ensure the company does not incur additional costs. Secondly, with optimistic outlook in aerospace and defense sector, the company is supposed to enhance its efforts in marketing and reach out to customers both internationally and domestically. This will make it possible for the company to capture a major share of revenues from the expansion of the sector while at the same time reducing the overdependence on government contracts.

4.2 Neutralizing the Threats

As noted already, the main threats Northrop faces are related to fixed price contracts and broader competition. The company has the ability to neutralize competition threat by leveraging on the competitive advantages it enjoys in the market. For instance, the company enjoys contractual relationship with the United States governm

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