2

Dave Ryan

Sector Vice President & General Manager

Civil Systems Division

Northrop Grumman Space Technology

August 5, 2008

Time: 8:30am – 9:30am

Emerging Challenges for a Changing Workforce

3

Northrop Grumman Today• Comprehensive business portfolio to address the defense

and government markets– Unparalleled portfolio of advanced

technologies– One of top three defense contractors– Leading systems integrator– Largest military shipbuilder– Largest provider of airborne radar

and electronic warfare systems– One of three top IT providers to the

U.S. Government – One of three major contractors in

military and civil space, missile defense

• 120,000 employees• 50 states, 25 countries• Headquartered in Los Angeles, CA

$32 Billion in 2007 sales$32 Billion in 2007 sales

2

4

Northrop Grumman Corporation

SpaceTechnology

ElectronicSystems

MissionSystems

Shipbuilding

InformationTechnology

IntegratedSystems

System-of-Systems Expertise Spans the Nation’s Defense and Intelligence Communities

TechnicalServices

3

5

NGST: Robust Programs in Every Division

National Systems Division(NSD)

National Systems Division(NSD)

Military Systems Division(MSD)

Military Systems Division(MSD)Civil

Systems Division(CSD)

Civil Systems Division

(CSD)

Multiple Restricted Programs

Advanced Extremely High

Frequency (AEHF)

Space Tracking & Surveillance System (STSS)

National Polar-orbiting

Operational Environmental

Satellite System (NPOESS)

James Webb Space Telescope

(JWST)

Airborne Laser (ABL)

Lunar Crater Observation &

Sensing Satellite (LCROSS)

MissileSystems Division(MXD)

MissileSystems Division(MXD)

Missile Engineering

Center

ICBM Prime Integration Contract

Kinetic Energy Interceptor

Technology & Emerging

SystemsDivision(T&ESD)

4

6

Civil Systems Division

Global Earth Observation System of Systems (GEOSS)

Geostationary Operational

Environmental Satellite

(GOES)-R

National Polar-orbiting

Operational Environmental

Satellite System (NPOESS)

James Webb Space Telescope

New Worlds Observer

• Exciting mix of on-going major acquisition developments and new competitive acquisitions.

• Provides numerous opportunities to engage in Contracting & Acquisition challenges facing Industry and Government

5

7

Changing Demographics and Environment

• The Aging Workforce

• The Loss of Technical Talent

• Lack of Youth Interest in Science, Technology, Engineering and Mathematics (STEM)

• Fewer Engineers in Colleges and Entering Aerospace Industry

• Shrinking Aerospace Workforce and Industry Consolidation

Changes That Impact Contracting and AcquisitionChanges That Impact Contracting and Acquisition

6

8

US Workforce General Statistics

• 43% of the US civilian workforce are eligible to retire in the next decade

• Fortune 500 expect to lose 50% of senior managers in the next 5 years

• By 2015 there will be a 15% decline in 35-55yr olds, while demand increases 25%

• In the next 10 years, 10 million jobs will open up for professionals, executives, technicians

Source: I4CP Institute for Corporate Productivity

Aerospace Industry Workforce Mirrors the U.S. PopulationAerospace Industry Workforce Mirrors the U.S. Population

7

9

• U.S. Population Overall (2005 Data*)– Nexters (Millennials, Gen Y): 26.1%

• 1980-2000– Generation Xers: 17.6%

• 1960-1980– Baby Boomers: 25.6%

• 1943-1960– Veterans (Traditionalists): 14.9%

• 1922-1943

• U.S. Workforce Overall (2005 Data in Millions)– Nexters (Millennials, Gen Y): Just starting– Generation Xers: 60M– Baby Boomers: 76M– Veterans (Traditionalists): 27M

*Approximate %

U.S. Employee Population

Competition for the Best People is IntensifyingCompetition for the Best People is Intensifying

8

10

Nominal Industry Population by Age Group

Large Segment of Experienced Workforce Ready to RetireLarge Segment of Experienced Workforce Ready to Retire

9

11

Nominal Industry Population by Years of Service

Growing Pool of Young Workforce Requiring Training/LeadershipGrowing Pool of Young Workforce Requiring Training/Leadership

10

12

Observed Government Management Challenge

Dramatic Demographic and Environment Shift for Government Dramatic Demographic and Environment Shift for Government

11

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1994 2005

# ofPrograms

# of Programs

# of Personnel # of

Personnel

Ind

ex

13

Changing Industry & Government Demographics

• Hiring has brought young, inexperienced employees into the work force.– New viewpoints, motivations, values, work ethic,

communication modes, etc.• The combined affects on both Industry and the

Government has made it absolutely critical for us to retain our experienced employees– Available to train younger staff and provide program

leadership– Critical to the retention and development of these new

employees

Critical to Retain experienced and Younger EmployeesCritical to Retain experienced and Younger Employees

12

14

Challenge to Contracting & Acquisition Community

By working together and recognizing the changing workforce demographics and environment:– We can ensure a strong industrial base, – Strong acquisition and contracting community and – Keep the nation's civil and military services at the forefront of

technology

• More critical now than ever for Industry & Government to:– Work collaboratively -- listen and learn from each other, respect

and share lessons learned with counterparts – Take the time to educate counterparts through joint training,

seminars, conferences, etc.

• Recognize and understand common objectives and Industry & Government needs to create “win-win” solutions

Opportune Time for Collaboration and InnovationOpportune Time for Collaboration and Innovation

13

15

Initiate a Joint Human Capital Strategy

• Managing Talent — Both Government and Industry ensure a robust pipeline of current and future Contracting & Acquisition talent

• Developing Leaders — Both Government and Industry train effective leaders at all levels to understand Government and Industry needs & expectations

• Optimizing Work-Life — Both Government and Industry create flexible work options to help employees better meet both work and personal needs

• STEM Support for K-12 Education -- Both Government and Industry encourage Science, Technology, Engineering and Math programs, that will help ensure a future, competitive workforce

• Foster Community Relationships -- Both Government and Industry must support education and community outreach activities

Attract, Develop and Retain The Best Talent to Ensure Continued U.S. SuperiorityAttract, Develop and Retain The Best Talent to Ensure Continued U.S. Superiority

14

16

Contract Fee Structures Aligned with the Current Environment

• Support shift from CPAF to CPIF/AF fee structures– Driven by GAO, Congressional and Public

Pressures• Objective contract fee determinations based on

defined criteria• Changing demographics support the move to greater

use objective fee criteria – As Younger Population Learns & Matures with

Experience– Continue Subjective Fee Criteria as appropriate

for Feedback on Management Priorities & Concerns

Better Linkage Between Risks, Incentives, Performance and ReturnsBetter Linkage Between Risks, Incentives, Performance and Returns

15

17

Nominal Hybrid Fee Structure Example- Major System Development

• Award Fee 1.5% Subj• Cost Incentive Fee 2.5% Obj• Schedule Incentive Fee 3.5% Obj• Technical Incentive Fee 3.0% Obj• Fixed Fee 3.0% Obj• Total Fee 13.5%

Combo of Objective and Subjective Works to Incentivize Complex System DevelopmentsCombo of Objective and Subjective Works to Incentivize Complex System Developments

18

Summary Contracting and Acquisition Communities of Industry

and Government need to focus on preparing younger people for future employment and leadership positions

We have the same challenges – Dramatic changes in our workforce and acquisition environment

We have the same objectives – Continued strong program execution and U.S. superiority

We Need To Work Together For Our Common SuccessWe Need To Work Together For Our Common Success

17