University of Southern California

Weathering The Storms
Chairman and CEO Talks About Keys to Keeping Company Competitive
January 29, 2007 • by News at Marshall

For Northrop Grumman Chairman and CEO Ronald Sugar, understanding a $30 billion global company can be found in the way it reinvented itself with a dizzying series of mergers designed to respond to a changing market for its goods, then pitched in to help thousands of its employees who were walloped by Hurricane Katrina.

These disparate subjects are keys to the recent transformation of a firm once known only for making fighter planes, and now is one of the Big Three defense contractors, making a wide variety of sophisticated equipment that includes submarines, aircraft carriers, pilotless drone aircraft, satellites, anti-missile weapons, communications gear and electronics. And according to Sugar, both a merger-driven transformation and a companywide response to a natural disaster teach that diversification, agility and human capital are vital to competing, even surviving.

Sugar, a Ph.D. in engineering and member of USC's Board of Trustees who has spent his entire career in the defense industry, was keynote speaker at the January edition of the Dean's Business Breakfast at the USC Marshall School of Business.

For Sugar, and for Northrop Grumman, survival as a company depends on investing in its people, more than 120,000 employees scattered in divisions around the nation and beyond.

"You've got to do the right thing for your people despite the cost," Sugar said. "You've got to save your business and the business is the people."

When the defense industry began downsizing and refocusing its priorities after the end of the Cold War, Northrop, as it was then known, had some choices to make. It could have downsized or sold off assets, as some of its major competitors chose to do. Instead, the company's leadership chose to redefine itself through a series of strategic mergers and acquisitions. He said nearly all the acquisitions, some 28 in all, successfully added assets that became key to the company's growth and expanded offerings, sometimes in ways that outsiders didn't immediately understand.

After weathering the storm of consolidation, becoming a world leader in defense electronics, shipbuilding and aerospace, the company faced a different kind of storm in 2005, when Hurricane Katrina hit the Louisiana and Mississippi coastal area, where five major Northrop Grumman facilities were based. It was, Sugar said, "the perfect storm to devastate Northrop Grumman."

Three shipyards, an aircraft-overhaul facility and 20,000 employees were rocked by winds, rain and 24-foot swells that left entire shipyards in ruins, caused more than $1 billion in damages and scattered Northrop Grumman workers across 48 states.

The company responded from across the country, as far-flung divisions sent gear, food, reconstruction materials, communications equipment and much more, all while Sugar was trying to get off a Canadian glacier where he had been hiking on a late-summer vacation. How the company handled Katrina's aftermath offers a lesson in crisis management, showing that flexibility, strong leadership, and investment in its human capital are keys to corporate success.

"There were no phones, no computers, no food, no water, no power, no sanitation, no fuel, no banks, no community infrastructure," said Sugar. "The entire company mobilized to create a relief effort, [we sent] company jets, fuel, security, generators... toilet paper."

Company executives even figured out a way to pay workers at a time when no banks or ATMs were functioning, by teaming with Western Union. And even though most workers in devastated areas couldn't initially report to their jobs after the storm had passed, Northrop Grumman spent between $70 million and $100 million to give them two weeks of pay and benefits.

It was a huge expense, Sugar said, and unprecedented in the long history of hurricanes hitting the region's shipyards. But it has proved to be a smart long-term investment, improving relations with the company's unions, and building loyalty among workers in a competitive field with a shortage of skilled talent. And such loyalty will matter in the future: Northrop Grumman is poised for additional growth, and must hire 15,000 employees this year. How it weathered its storms made that possible.

MGM Mirage Inc. Chairman and CEO J. Terrence Lanni will keynote the next Dean's Business Breakfast, scheduled for 7 AM, Feb. 13 at the Omni Hotel in downtown Los Angeles. Sponsors are Wells Fargo Bank and the law firm of Pillsbury Winthrop Shaw Pittman. The event is co-hosted by USC Lusk Center for Real Estate. For more information visit http://www.marshall.usc.edu/community/corprelations/events.htm.

 


About the USC Marshall School of Business
Consistently ranked among the nation's premier schools, USC Marshall is internationally recognized for its emphasis on entrepreneurship and innovation, social responsibility and path-breaking research. Located in the heart of Los Angeles, one of the world's leading business centers and the U.S. gateway to the Pacific Rim, Marshall offers its 5,700-plus undergraduate and graduate students a unique world view and impressive global experiential opportunities. With an alumni community spanning 123 countries, USC Marshall students join a worldwide community of thought leaders who are redefining the way business works.