Northrop CEO speaks out on future of defense contracting

tclark@govexec.com

The air war over Kosovo this year provided a convincing display of American technological superiority-to the gratification of American defense contractors, notably the Pentagon's fifth-ranked supplier, Northrop Grumman. Northrop's B-2 bombers saw service in all-weather bombing of Kosovo. Its JSTARS surveillance aircraft and EA-6B Prowler jamming aircraft also played key roles in the conflict.

Kosovo's demonstration of a successful engagement without large-scale commitment of ground forces could set the pattern for future warfare, according to some observers. The American public simply won't tolerate high casualties in conflicts that don't directly put U.S. interests at risk, they say.

Among defense leaders holding this view is Kent Kresa, Northrop Grumman's chairman. Kresa believes that sophisticated information-gathering and analysis, and the ability to quickly identify and destroy key targets, hold the key to future deployments in the Kosovo mold. He has positioned his company to take advantage of opportunities along these lines, pushing the big military contractor ever deeper into defense electronics and information technology. In a recent interview at the firm's Los Angeles headquarters, Kresa described trends he sees in warfare and in defense contracting.

On high-technology warfare

Clearly the use of information and the denial of information is critical in the way we see the future.

You could envision a system in the latter part of the next century where you have real-time surveillance of the battlefield, understanding everything that's going on. You could have the ability to make decisions in virtually real time, on what targets need to be struck, have the ability to pass that information instantly to platforms and shooters that are in the theater, maybe even moving targets, where the data are updated as the target moves. That's a vision [that would] require vast amounts of communications, and one that would give you a great strength and make you a formidable adversary.

At the same time, enemies will be looking to mess it up, to develop countermeasures that can put in false data, or jam the system, or otherwise negate that tremendous capability. So there will be an enormous counter-activity [that's] really no different than in the case of radar jamming and counter-jamming, and all of the things that go on in the game between measure and counter-measure.

This cyber world is going to become a much more important area, as we look forward. It's one of the reasons we have transformed Northrop Grumman from basically an aircraft company into principally a defense electronics and information technology company.

On key cybertechnologies

Clearly, sensors are important. How you can get the precision of the sensors that can see and make decisions and discriminate those things that you want to know is the first thing. The second is all of the processing you'll have to do if you want to think of millions of targets. How do you separate the targets of interest from the targets of non-interest, and once you do that separation, how do you maintain it? You can't refresh each time, open your eyes and start over with a million targets if you finally find something. You need to hold it, so there are tracking and discrimination requirements. Then there's just the enormous amount of information flow. How you handle that, how the traffic is routed and available, and then how do you make decisions? How do you take all of this information the sensors are providing and boil it down in a way you can get the information with high reliability to a commander so the commander can make reasonable decisions?

Technology will eventually evolve which will allow you to do that quickly, and the quicker you can get it, the more effective you will be compared to someone else. So it will be a major part of the game. On the other side will be the whole issue of jamming-not only jamming in the conventional sense of blinding the sensor, but how you can put information into the sensor that is wrong [and thus cause] people to question what they're doing. If you can stop somebody from knowing what he's doing then it's the same thing as blinding, so there are two ways to go there. Just the way you can defeat certain kinds of missile seekers, you could figure out how the sensors work to develop countermeasures. So there will be this game over the next 50 years, and [Northrop Grumman] is well positioned to play in it.

On types of sensors

Sensors are going to be all-weather systems, they're going to be optical, infrared and radar, microwave of various types, they are going to be active and passive. They will operate from manned aircraft, from unmanned aircraft and from space. Some may also be on the ground.

On lessons from Kosovo

I certainly believe we're seeing the leading edge of the 21st century in this confrontation. We saw extensive use of all-weather surveillance and all-weather bombing. And it turned out that the United States was the only country that had that capability. The alliance relied on this new capability and the precision weapons that were being used were really in very short supply, because they were just starting to come into the inventory. But they were the ones that represented the majority of the targets killed in Kosovo. So clearly we saw that this issue of all-weather surveillance and all-weather precision as the wave of the future. We saw a lot of mistakes. We tried to make decisions [such as attempting to distinguish tractors from tanks] that show we're not there yet. With all of that, one can argue with enough processing and with clever ideas in the future we'll be able to resolve these issues, and I think we can.

On the capabilities of air warfare

Of course, without ground forces, you can't hold territory, you can't do a whole bunch of things. But certainly taking down a country's infrastructure and their will to fight can literally be done from the air, and with precision capabilities. And any adversary has to recognize that we can absolutely devastate their way of life.

Certainly on our side the ability to have lower casualties is a necessity in a world where America is not threatened directly. People will wonder why they should sacrifice their children to a situation in another part of the world that has no direct bearing on the United States of America. If you had a World War II, there would be an entirely different sense and casualties would be more allowable, [but now] there is more and more need to have very low casualties if you are going to use American forces overseas. That's just the natural outcome of where we are.

On implications for Northrop Grumman of the Kosovo engagement

If you look at the stars of Kosovo, I'd say that we had more than our fair share of those: the EA-6B jamming aircraft, the Joint Stars aircraft, the AWACS aircraft, and doing precision bombing for the first time with the B-2. These are all capabilities that we have been advocating and have been very much involved in.

On micromanagement and bureaucracy

I think industry has welcomed all the initiatives to reduce the amount of micromanagement that has gone on, the thousands of people that are involved, and the enormous number of meetings. We in our own companies have stripped out lots of that in the way we manage and I think that the government is stripping much of that out, as well.

[It's increasingly possible because] the ability to communicate at all levels in an organization instantaneously is now with us. That was not the case five to seven years ago. There was a memo chain and approval that took hours and days or months to get decisions. That process, at least in a company, can now be handled in seconds. And I think that is affecting the way we think.

I believe the government is somewhat behind industry, but they're moving. It's not like they're 20 years behind-they're slightly behind. And part of that, I think, has to do with the fact that government is more conservative since it's dealing with the taxpayers' money, plus Congress is just ultra-conservative. Congress still operates the way it did almost when we started. And as the board members of the system, [they establish] lots of rules and regulations by law. So you can only take the streamlining so far. Congress would have to decide that it was going to demand the same kinds of [rapid response to customer needs] that we get on the outside [in the private sector] and then you can see the effort to streamline the process will move very dramatically.

On the effects of acquisition reforms

I think it's had a very positive effect. Senior people have worked so hard at this, have driven the idea down through the systems so that people have a different attitude. A lot of this is attitude: the difference between being a traffic cop-a person who says no-versus a person who tends to implement-to say yes, to help. There's an enormous difference between "I'll wait and see" and "Let me see if I can help." And we're getting to the point where we're having the government really operate as a team member and we're all in it together and that's having a very positive effect. Is there more to do? Absolutely.

On the July 22 House vote to kill the F-22

My first reaction was tremendous surprise, just because the program had been so strongly supported by everybody both inside the administration and Congress in the past.

But I was not surprised in the fact that a major weapons system was being questioned as we move into production. I think that there has been a long history of this kind of serious debate about whether to move into production, and questions about how much of the total budget is going to be spent on [particular weapons]. There was certainly an unfortunate situation with the B-2 where we went from a very large number down to a very small number in a period where a few of the congressmen were very vocal in their concern that we didn't need a B-2.

This issue, I think, is aggravated with the concern of moving to production when all the testing that people said they were going to do wasn't complete. And they want to say, well, we'll go ahead anyway and there is concern on that end.

They have to get all of the test points done. They've got to make sure that the program performs as advertised, as they claimed they were going to do. To the extent that it does that, I think it will go forward very well.

On parochialism in the armed services

Large organizations don't like to change. You only do it when you're forced to do it-sometimes by your boss, sometimes by the marketplace. Sometimes you do things because national security is being threatened, and everybody pulls together and creates something that nobody could have done two weeks before the war started. There's all kinds of dynamics that go on, but an organization just left to itself wants to be like it is. We have large organizations in the government and in the services that have lots of structure built-in, in order to have command structure. So it's not surprising that people want to do things the way they've always done them.

The world is moving very, very rapidly, to a point that we can argue that maybe there should be more dramatic change, maybe there should be more dramatic views about the way we should organize ourselves and do things. Certainly, in industry, where you used to have very stagnant companies that wouldn't move, wouldn't do much, change is the way of life.

Nobody gets all hung up that tomorrow we've got to restructure, we're going to do things differently. Because we've seen that it works, we can be more efficient. That we can do things better than we did before and that the threat of not being in business is so great that we must change.

[In a recent speech to the Defense Science Board], I cited the example of car companies that went through enormous change in the '80s. General Motors was no different than the Defense Department in the sense that it was a bureaucratic structure with car companies underneath it building and fighting, trying to get share of the market from each other. What's different? There wasn't any difference.

So, in that sense you'd like to believe that the services would become more willing to think more broadly about how to organize for the next millennium. And the problem is that just a few people trying won't move this thing. There has to be some mechanism to allow this to change, and I don't know what it is. The one I know that works is a major threat to this country. We'd need an event that's equivalent to that in people's minds, one that would turn the energies and the willingness to join together and to make things happen. A sense of urgency and a sense that there is a bigger, overall objective than my office, my career, the corps or whatever it is. There's this broader issue of protecting America, and that becomes a big deal in war.

On consolidation of defense industry in the U.S. and Europe and the possibilities of trans-Atlantic mergers or joint ventures

I would say that there is a clear need to insure that we never get to Fortress America and Fortress Europe [competing against each other to develop and sell weapons systems]. I think people on both sides of the Atlantic understand that and won't allow that to happen. There is a tremendous interest on the part of the DoD to have more competition in America because the number of competitors has decreased. And clearly there is a great interest among the Europeans to be able to get into the U.S. market. Similarly, there is interest in America to get into the European market. And so potentially, it might be nice to see some sort of worldwide structures going on.

My view of this is that it's too hard to talk about equity mergers. It's hard enough to do it within a country, and it would be even harder on a trans-border basis. We're seeing some in Europe, obviously, as with the recent announcement of the merger between British Aerospace and [the Marconi defense unit of Britain's General Electric Co.], but that is a national merger. We're now seeing for the first time a dramatic transnational merger, with the combination of the German DASA [the aerospace unit of Daimler-Chrysler] and the French Aerospatiale Matra.

I think that if you look at what's happened over the last decade or so, we've been quite successful at various teaming relationships, and I'd say that model will continue, where there will be transnational teaming. Plus I think that there could be a broader set of teaming having to do with market area. We're seeing that for the first time with the announcement that BAE and Boeing are going to essentially pool their understanding of missiles to be a competitor to Raytheon.

I think this is a positive step from the U.S. point of view [and the Pentagon] will say, 'Gee, we'll get a competitor, so instead of having the sole source air-to-air situation with Raytheon, we now have some competitors.' I think the Europeans will say, 'Gee, we have two players now and we won't have all the pressure that there's one American company that's being pushed upon us.' They'll have two options.

So I think this is the way the world will go. We'll probably see other things happen where teams are put together in more of a broad area. That's my vision of where this thing is going to go. So we're not duplicating the investment, sharing the technology, and obviously production will be done in the countries where the work is going to be done. I think that if the U.S. government buys from a consortium of countries it will be produced here. Similarly, if they buy an American system in Europe, it will get produced in Europe. And we know how to do that, and by having people on both sides of the ocean, that certainly can happen.

On whether size matters in defense contracting

I can say certainly that size matters in the sense that everybody perceives it matters. But if you get down to really looking at things, it has to do with your size and your position in the marketplace and in the market you serve. And this is a very broad set of markets from information technology to radar to airplanes.

We have, in about half of our businesses, the number one or number two positions in those marketplaces. And we're very formidable and we can compete with anybody. We're not in as many [markets] as some of the other companies, and you could argue that there is some advantage to being large, but I could also say that the span of control could be in our favor. We feel very comfortable when we control things. And we've seen some people having problems with their larger companies recently; certainly size makes it harder to control.

In industry we've gone from being large as the right way to breaking up because small is better and focused is better, to where we get large again. I feel comfortable that we need to be absolutely exceptional with our technology and our capabilities in the markets we serve. We're not serving all the markets that everybody else does and as long as we can have that critical technological mass we'll be as successful as anyone else, maybe more successful.

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