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Northrop--a Company in Turmoil

December 20, 1987|RALPH VARTABEDIAN | Times Staff Writer

How the company got into this position is a story that has its roots in a long and arduous effort by talented Northrop engineers dating back to the 1950s to expand the firm into a major producer of precision guidance equipment.

Extraordinary Measures

But it is also a story of an embedded management at the firm's electronics divisions that was unwilling to face up to its shortcomings for years on end as the company grew. It declined to take on the humanly difficult task of breaking up what had seemed to be almost a brotherhood.

FOR THE RECORD
Los Angeles Times Monday December 21, 1987 Home Edition Business Part 4 Page 2 Column 6 Financial Desk 2 inches; 42 words Type of Material: Correction
A quote that was extracted from and displayed with a story about Northrop Corp. in Sunday's editions was incorrectly attributed to Northrop vice chairman Frank Lynch. In the story, the quote was correctly attributed to a former manager in Northrop's electronics division who was not identified.

What followed, according to some congressional critics, was a record of mismanagement and malaise that was tolerated for years. The crisis burst upon the company about a year ago, compelling it to take extraordinary measures, according to more than two dozen interviews with former military officials, industry experts and Northrop executives.

The Northrop case seems to show that defense contractors generally cannot painlessly grow into huge specialized manufacturing organizations in only a few years. Northrop's electronics division attempted to go from being an organization of 600 employees mostly conducting research to a large manufacturing operation with 5,000 employees.

The problems the company has encountered also call into serious question Pentagon policies to foster competition to make very complex products that single companies have traditionally manufactured. Defense contractors are often called on to build up production capabilities for some of the highest-technology devices in the world, all within a few years and without any margin for error.

The MX guidance device, known as an inertial measurement unit or IMU, is among the most complex devices in the military world, containing 19,401 parts packaged in a device about the size of a basketball. An IMU could be compared to a compass and speedometer, telling a computer aboard the MX how to steer the missile to its target.

Rockwell Was Leader

When Northrop won a contract in May, 1975, to build the MX guidance device, the award represented a remarkable achievement in the world of missile guidance. In winning the MX program, Northrop unseated far-larger competitors with greater experience and stronger reputations. Northrop prevailed over competing bids by Rockwell International and Honeywell in 1975.

Rockwell International's Autonetics unit in Anaheim had built 2,258 inertial measurement units and related guidance computers for the Air Force in the Minuteman I, II and III missile programs between 1961 and 1975 at a cost of $7 billion (adjusted to 1987 dollars), according to Air Force records.

Rockwell had the reputation of being the premier military guidance house in the nation. In addition to the missile guidance, Rockwell produced the very accurate systems that went aboard the Navy's nuclear submarines.

What motivated the Air Force to change its source for nuclear missile guidance systems after what had been a highly successful history in the Minuteman III program at with Rockwell?

John Hepfer, now retired in Florida, was the Air Force general directly responsible for selecting Northrop over Rockwell in 1975. Hepfer said in a recent interview that the Air Force specifically wanted to knock Rockwell out of IMU production so that it would not have the job of both building the IMU and the guidance computer for the MX. Rockwell ultimately did win the job of building the computer and integrating the different parts of the MX guidance system.

"I was the guidance project officer on the Minuteman II and the Minuteman III," Hepfer recalled. "When we got to the MX, we thought we would split the system up. And we did that by giving the integration job to Rockwell and the IMU to Northrop.

Problems Started in '82

"Northrop had this gentleman by the name of Dave Ferguson, who had worked with the Draper Laboratory and had done good work. He had also worked with a division up in Massachusetts that built gyroscopes. We had confidence that he was aware of the technical difficulties."

What Hepfer could not foresee was that Ferguson would leave the program by 1982 when he was promoted to group vice president. That year also marked the beginning of the problems cited in audits conducted by government inspection teams.

In June, 1982, the Air Force conducted a quality review of the MX program, found a number of things out of compliance with its standards and concluded that they were due to "an unorganized transition from a research and development environment to a production mode of operation."

By 1985, the Air Force's reviews had grown notably more acerbic. "Significant performance deficiencies were identified in your division which require management attention," the Air Force wrote to a Northrop official. The review found such problems as a fragmented management organization at the company's electronics division, poor workmanship in products, outdated engineering procedures and said up to 45% of IMU production required rework.

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