Northrop Grumman Bites The Bullet And Moves To D.C.

In his first day on the job Monday, incoming Northrop Grumman CEO Wes Bush announced the company would move its corporate headquarters to the Washington area. The move is long overdue, given how tight the competition has become among the look-alike companies that dominate the defense sector. When everybody in the business is marketing pretty much the same aerospace, electronic and information technologies, you can’t afford to keep your senior staff 3,000 miles away from the only customer that matters while competitors are operating from adjacent zip codes. So after spending years on tedious transcontinental flights to try to stay in touch with his federal customer, Wes Bush bit the bullet and did what had to be done.

This isn’t exactly blazing a new trail for Southern California companies. Over the last couple of years, Computer Sciences Corporation, Science Applications International and Hilton Worldwide have all departed SoCal headquarters to locate near D.C. The reasoning behind Hilton’s move was more personal than professional, but for the defense contractors it was a matter of life and death. They have to be here to compete effectively. Lockheed came to the same conclusion when it merged with Martin Marietta in the 1990s, so the corporate headquarters of the combined entity ended up in Bethesda, Maryland — a 15 minute ride from the Pentagon unless it’s rush-hour — rather than Calabasas, California. General Dynamics made the move from St. Louis a few years later, and has flourished ever since — which gives you some idea of how long Boeing is likely to keep the headquarters of its own defense business in St. Louis once production of the F/A-18 fighter at the old McDonnell Douglas complex there ceases (many of its key execs have already relocated to Arlington, Virginia’s Crystal City area near the Pentagon).

So the real question about Northrop Grumman’s move isn’t why they did it, but why they waited so long to do it. I think I know the answer. When I asked former CEO Ron Sugar’s predecessor, Kent Kresa, why he didn’t just move to D.C in the late 1990s, he told me his staff had already been subjected to too much stress in the post-cold-war consolidation wave, and he didn’t want to stress them any further. Kresa’s decision to pick Ron Sugar as his successor installed a hometown boy in the executive suite at Century City; Sugar and his wife had both been class valedictorians at their high school in South L.A., and they both attended UCLA. With those kinds of deep roots in Southern California, Sugar wasn’t eager to move. Wes Bush isn’t sentimental like that. If his key customers were Eskimos, he would move the corporate headquarters to Nome. Now that he has settled on the D.C. area as the company’s new home, his competitors are going to face much tougher competition from Northrop Grumman — a hugely capable company that has the potential to blow away any rival in the emerging defense market.

Incidentally, I’ll let you in on a little secret about the move that even Northrop Grumman doesn’t know yet. The new corporate headquarters is going to be in Northern Virginia. Why? Because Virginia has the most favorable business climate of any state, it’s more convenient for getting to the airports, most of the company’s key customers are located there (starting with the CIA and the Pentagon), and Northrop already is just about the biggest private-sector employer in the Old Dominion. If you doubt that latter point, count the number of Northrop Grumman logos on office buildings the next time you drive into the city from Dulles airport. Places like Bethesda and the District are too crowded, too unfriendly to business, or too likely to be the target of Al Qaeda’s first nuclear device. So Northern Virginia it is. And given Wes Bush’s bottom-line focus, I’ll bet he doesn’t even build a new headquarters building; if he can, he’ll rent more space in the Rosslyn office tower where the company’s Washington nerve center already is located, because that’s the cheap option and you can’t beat the location for proximity to policymakers.