When Huntington Ingalls Industries Inc. went public on March 31, 2011, President and CEO Mike Petters noted that the company's strategy "is to better align our businesses with the U.S. Navy's priorities and to continue improving our shipbuilding performance while meeting our customer commitments."
In Part 1 of his conversation with IndustryWeek, Petters asserted that the former unit of Northrop Grumman Corp. (IW 500: 33) made tremendous strides toward its objectives in 2011, delivering the amphibious ship LPD 22 San Diego -- which garnered rave reviews from the U.S. Navy -- and nearly doubling its total operating margin, among other highlights.
In Part 2, Petters addresses the uncertainty around defense spending and talks about some of the keys to success for America's largest manufacturer of military ships.
IW: Many defense contractors are on edge about the specter of sequestration and/or long-term cuts to the U.S. defense budget. How do you see the situation affecting your business?
MP: I think everybody is saying the same thing: that there would be an effect, and it depends.
But I would go back to the nature of our business -- it's a pretty long-cycle product.
We make products that take four to eight years to build. Most of the work that we're going to do in the next three to five years we already have under contract.
And so the first part of our strategy is we have to continue to execute on the work that we have to get us through the next three to five years.
We're very involved in the budget debate that's going on, and we certainly have our views about what makes sense and what doesn't and what the impacts might be.
Certainly some of the things that we do are national-asset kinds of capabilities, and we want to make sure folks understand that if you let some of these things go, you may not ever get them started back up again.
But having said that, the budget debate really is about what this business is going to look like in five to 10 years. It's less about what it's going to look like in three to five years.
... And in that longer view, I just fundamentally believe that we're a nation that is absolutely critically dependent upon our ability to keep the seas free. And as such, I believe that we will always need a strong navy.
If the nation needs a navy, the navy is going to need somebody to build it. And we're here to do that today; we plan to be here tomorrow.
Rebooting the Business
IW: You've talked about how the LPD 22 San Diego has set the standard for the construction of the four remaining LPD 17-class ships in the company's pipeline. What made the LPD 22 such a success?
MP: My team was asked to take over responsibility for all of shipbuilding inside of Northrop Grumman in the beginning of 2008. When we did that, we found a lot of challenges in just about every dimension of the business.
We were about to deliver our fifth LPD, and we had built that ship five different ways. And so we began the process back then of rebooting the business from a post-Katrina standpoint.
This was two and a half years after the storm, and Northrop Grumman had basically rebuilt the shipyard [in Pascagoula, Miss.] -- so the hardware was in place.
But what we now needed to do was reboot the business from a culture, leadership and expectation standpoint.
And so I would say that the seeds of success at the end of 2011 really were planted back in 2008 and 2009 as we wrestled with how do you set the culture of a new workforce, what do you want it to be, and how do you make sure you pick the right leaders for that.
Our business has such long cycles in it that [change] doesn't start to show itself right away. And so what's exciting about this is that now we actually are starting to see some of the fruits of the work of the last four years.
IW: You mentioned 'rebooting' the company from a leadership standpoint. How important is leadership to the success of the LPD-17 program and the company overall?
MP: We have a philosophy in our business that leadership is a craft all its own.
There are welders and fitters and accountants and lawyers, and all of them have their craft. And I think one of the things that corporations sometimes miss is that leadership is also a craft. We are very serious about that.
We invest substantially in our leadership teams, in the development of our leaders. We want to make sure that when we put you in a spot to lead something that you have an understanding of what that really means, and that you're not going to try to stumble your way through and see whether you get it right or not.
Years ago, I observed that the way that we in corporate America often pick leaders is if you could imagine taking kids to the end of a pier and throwing them in the water to see if they can swim or not.
That's what we do with leaders a lot -- we grab people and say, 'You're the best engineer, so now we're going to make you the supervisor.'
And we take them out and we throw them into the supervisor job, but we haven't done anything really to develop them as a supervisor because we've been developing them as an engineer all the way through.
And so we've invested heavily in the development of our leaders at every level, whether it's at the foreman/front-line supervisor level, the middle-management level, the director or vice president/executive level.
We are very deliberate about that development. And I think that's what pays off.
Capability to do Complex Things
IW: Going forward, what do you see as the biggest untapped opportunities for Huntington Ingalls?
MP: If you step back and look across the waterfront of a shipyard, you see lots of different kinds of capabilities -- from very simple things to incredibly complex things.
And my view is that a lot of those capabilities -- especially on the complex side -- are things for which there actually may be customers beyond and outside of shipbuilding.
We do some really complex things -- really heavy work, high energy density, high system content, significant outfitting, complex design. Those kinds of things are things that we do everyday.
Over the last decade or so, a lot has been written about how manufacturing left the United States.
We never left. And we're still here.
And what we're finding now is that there are people who are starting to think that maybe we need to be doing this kind of complex manufacturing in the United States.
Well, who in the United States knows how to do this? Turns out that we have a view on that.
And so it's not going to be the kind of thing that's going to completely change the business overnight. But you start to get yourself involved in a small project, you demonstrate your value to a particular customer, and it becomes more than just a customer-supplier relationship -- it can become more of a partnership relationship.
And the next thing you know you have a pretty substantial opportunity in a business.
I'm inspired by something that happened in the Newport News Shipyard back in the 1950s. A handful of engineers went out to Idaho and started doing a little bit of work on an atomic-power project.
That turned into nuclear-powered ships. That turned into the USS Enterprise, which is now 50 years old and on her final deployment, and has been involved in just about every significant Naval operation of the last 50 years.
It has turned into the entire class of Nimitz carriers as well as the Ford and the Kennedy, which are the first two ships of the Ford class.
It's turned into all of the submarines built at Newport News, plus all the refueling [for nuclear-powered aircraft carriers].
And that was just a handful of engineers in the 1950s going out to see what this nuclear-power stuff was all about.
So I don't know exactly which one of these things might work out for us, and I think that we can learn a lot from that example because it took a while for that to work out.
But I believe deeply in the capability of our people. And when they see an opportunity and they have a chance to demonstrate their ability and their ability to take complex things and do it right and do it successfully, I think that creates business opportunities for us.
And so we will be on the lookout, as they say.
This is Part 2 in a two-part series. To read Part 1, click here.