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Phebe Novakovic, Chairman/CEO General Dynamics
General Dynamics
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Phebe Novakovic


Chairman/CEO, General Dynamics


Age:
Years as a CEO:
Tenure: 0
Industry: Autos, Aero & Defense



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CEO DOSSIER


Phebe Novakovic became CEO of General Dynamics on 1st January 2013. She took up leadership of the company in a time of cut-backs to governmental investment in defence. How will she approach the situation and promote growth in this difficult climate?

early years
After completing her undergraduate studies at Smith College in 1979, Phebe began her career as an analyst at the Mclean Research Centre; performing operational analyses on the Department of Defense’s weapon systems. Between 1983 and 1986 she worked for the CIA as an operation officer, before returning to education, to obtain an MSc in Business Administration from the University of Pennsylvania in 1988. She then returned to work for the US government.

After a stint at the Office of Management and Budget, where her promotion to Deputy Associate Director for National Security saw her managing and submitting the President’s budget for the U.S. Intelligence Agencies and the Department of Defense, she moved to the latter department itself, as a top aide. There, from 1997 to 2001, she served as the Special Assistant to the Secretary and Deputy Secretary of Defense. She left to join General Dynamics the following year, where she filled a number of posts. 
 
In October 2002, Phebe was made Vice President of Strategic Planning, in July 2005 the Senior Vice President of Planning and Development, and in May 2010 the executive vice president for Marine Systems group - a division responsible for the performance of the three of General Dynamics key companies. Named by Fortune Magazine in 2011 as one of the "50 most powerful women in business”, Phebe was promoted again, exactly two years later, to President, Chief Operating Officer, and a member of the board of directors. The appointment was considered “the beginning of a succession process”, with the current CEO Jay Johnson likely to leave the position. Sure enough, in June 2012 the company announced that as of January 2013 she would become CEO of the company.


As ceo
Although Phebe’s promotion to CEO was anticipated, the news came earlier than expected, perhaps prompted by mounting concerns over slowing sales and General Dynamic’s falling share price. In particular, declining sales in the information systems sector in the first-quarter – a division responsible for about a third of all sales – raised alarm. But Phebe assumed the role in a more widely uncertain climate. Loren Thompson, a defense consultant, alluded to the challenges she will face as leader of the world’s fourth largest defence contractor: "Johnson is leaving General Dynamics in pretty good shape, but his successor is going to face some really daunting challenges in terms of budget sequestration and declining military demand”. Fuelling this shrinking demand was the impending US exit from Afghanistan and Iraq, as well as the prospect of $500 billion in additional defence spending cuts, on top of the $487 billion reductions already scheduled for over the next decade.
 
In her first quarterly call with analysts, Phebe showed recognition of the tough times ahead for the industry. She gave a conservative outlook for 2013: "We will focus this year on operations, drive cost out of our businesses and improve performance. But I do not intend to guide you to higher operating margins than are currently embedded in our plan because we have yet to earn them”. 

However, she also indicated that these were challenges she would actively tackle. Although she denied any plans for divestitures or portfolio reshaping, she was critical of the company’s “broken” M&A processes: "I can tell you there are almost no acquisition candidates in the current pipeline. I also believe that the acquisition process at GD is somewhat broken, and I will not venture back into that market until we have re-established the discipline in this process.” She was also critical of her predecessor’s policy: "It ought to be clear from the charges that in some respects we took our eye off the ball.”

In comparison, as CEO she has vowed to be “focused like a laser beam”. She made her strategy clear: "We are not going to chase revenue. We are going to stick to our knitting and do what we know how to do.” Declaring this a move prudent in light of uncertainty about future US budget levels, she added: "We have cleaned up our business, 2013 is our reset year.”
 
Her speech had a positive effect on investors. Issued after reports of a $2bill loss in the fourth quarter, which saw General Dynamic’s stock prices tumble by 5%, her words seemed to reassure, with shares beginning to climb. Reporters concluded that, rather than whitewash the situation, she was “candid about failures and specific about recovery plans”. In a statement that showed the strength of her own convictions, she stated:  "Some of the acquisitions that we've made I'm not a particular fan of and had I been consulted, wouldn't have been done."

Away from work
Phebe sits on the board of directors for several charitable organizations, including Project HOPE, the National Military Families Association and the Senior Advisory Board for the Naval Historical Foundation.

Leadership and philosophy
On streamlining the business: 
"It's our job to right-size our businesses, drive costs out and perform for our customers and our shareholders and our people."

Our Three Questions
1. How has your background in defence prepared you for your current position as CEO?
2. How will you tackle the specific losses to the Information Systems division?
3. Will you allow General Dynamics to shrink in line with the US government’s budgets, or will you expand into new markets and products?

Colleagues, Friends & Analysts' report
Jim McAleese, Defense Consultant: 
"Clearly the company needs a catalyst to reenergize the stock” - adding that Novakovic was seen by investors as shrewd, charismatic and decisive.
 
Rob Stallard, RBC Capital Markets: 
"The first quarter in charge for new CEO Phebe Novakovic has included some anticipated clearing of the decks, though the scale of the writedowns are pretty eye-watering.”
 
Loren Thompson, defense consultant: 
"The defense industry is undergoing a demographic revolution in which women for the first time ever are rising to the most senior jobs at places like General Dynamics and BAE Systems and Lockheed Martin. Twenty years ago you wouldn't have believed that this industry was capable of such a transformation."

Date Written
07-05-2013
Sources
Armed Services
Bloomberg
Defense Systems
Reuters
The North Jefferson News
Women’s Resource Centre
Washington Business Journal
Armed Services
Bloomberg
Defense Systems
Reuters
The North Jefferson News
Women’s Resource Centre
Washington Business Journal
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Financials
Business summary
Employees: 92,200

General Dynamics Corporation, an aerospace and defense company, provides business aviation; combat vehicles, weapons systems, and munitions; military and commercial shipbuilding; and communications and information technology products and services worldwide. Its Aerospace group designs, manufactures, and outfits business-jet aircrafts; provides maintenance, repair work, fixed-based operations, and aircraft management services; and performs aircraft completions for aircraft. The company’s Combat Systems group offers tracked and wheeled military vehicles, weapons systems, and munitions. Its product lines include wheeled combat and tactical vehicles; battle tanks and infantry vehicles; munitions and propellant; and rockets and gun systems. This group also manufactures and supplies aircraft and ground equipment components, engineered axles, suspensions, brakes, and aftermarket parts for various vehicles of military and commercial customers; and provides support and sustainment services. The company’s Marine Systems group designs, builds, and supports submarines and surface ships for the U.S. Navy. This group offers nuclear-powered submarines, surface combatants, auxiliary and combat-logistics ships, and commercial ships; and provides design and engineering support services, as well as overhaul, repair, and lifecycle support services. Its Information Systems and Technology group provides technologies, products, and services that support a range of government and commercial communication and information sharing and security needs. This group offers communications systems, command-and-control systems, and operational hardware; information technology solutions and mission support services; and intelligence, surveillance, and reconnaissance systems to the U.S. defense, intelligence, and homeland security communities, as well as to the U.S. allies, and commercial and international customers. The company was founded in 1899 and is headquartered in Falls Church, Virginia.

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