Booz Allen returning to its roots, with a twist
It’s now consulting with commercial clients and helping run parts of firms
Booz Allen Hamilton is getting the band back together again, but this variation is going to play a different tune.
Century-old Booz Allen, which has operated as a government contractor since breaking in two in 2008, is returning to the lucrative, high-margin commercial and international sectors.
The new company will not only consult with clients, but also help them run parts of the business. Booz is going to take what it has learned over decades as a contractor with the government and Defense Department and apply that to new markets.
These lines of business represent only 3 percent of revenue at the $5.5 billion company, but their impact on the bottom line is much bigger. The products include flashy systems such as helping Major League Baseball build a command center for its instantreplay umpire challenges and helping a giant pharmaceutical company boost production.
“We are 3.2 percent of revenue, but we are a much larger percentage of the profit margin,” said Reggie Van Lee, 57, the executive vice president in charge of the commercial side. Because of fewer people and costs, “this small, focused effort has a multiple impact on revenue and on margin.”
The company has shuffled its executive suite, too. Longtime chief executive Ralph Shrader retired in December at age 70, handing over the responsibilities to Horacio Rozanski, 47. Chief financial officer Sam Strickland, 63, also retired last year and was replaced by Kevin Cook, 60. Rozanski and Cook have more than two decades apiece with the company.
Booz Allen brought Van Lee in to run its commercial side after years of service with the company. His effort is focusing on cyber, data analytics and regulatory compliance.
“They are a new team leading what is essentially a new company,” said Carter Copeland, a senior analyst with Barclays who is bullish on the stock. “The company grew so rapidly for so long, going through a real downturn taught them lessons about their business and how to manage it. But they came out of the downturn as an even better company, a changed company . . . with a young leadership team.”
Booz Allen is targeting big clients — banks, oil, utilities, health care, life sciences, retail, manufacturing— who bring in fat margins.
New Booz works with auto manufacturers to crunch data that tell them what a customer wants in her SUV.
New Booz crunches data for large financial institutions, helping them find new products to sell customers.
The pivot into more commercial business was taken out of necessity.
The total revenue of publicly traded Booz Allen Hamilton, which still relies on the federal government for the vast majority of its revenue, has declined with federal cutbacks and sequestration. Revenue dropped from $5.86 billion in 2012 to $5.47 billion in fiscal 2014. Profit decreased from $240 million to $232 million in that time, a fall of about 3 percent.
“Our revenues shrunk a little over the last few years,” said Rozanski, who added that another government stoppage is unlikely but not out of the question. “Turbulent is the best way to describe it. Our client side did not know how much money they were going to have, so there was some level of paralysis in the government contracting process. It’s the uncertainty in the market, which was the biggest challenge for clients and for us.”
There is also the ever-present instability in the world economy with the potential of contagion should Greece leave the euro zone.
“The trick for us,” he said, “is being willing to focus on what we can control.”
Founded in 1914, Booz Allen’s old commercial business focused on providing strategy to business executives, much as Boston Consulting Group, Bain and McKinsey do now.
After the split in 2008, the commercial group called itself Booz & Co. and went one way while the government half, owned by the Carlyle Group, stayed away from commercial because of a non-compete agreement. That restriction expired several years ago.
So Booz Allen Hamilton will be competing with Booz & Co., which is now a division of PricewaterhouseCoopers named Strategy&.
The District-based Carlyle still owns a chunk of Booz Allen Hamilton.
After the expiration of the noncompete clause, Booz Allen Ham- ilton has steadily climbed back into commercial, attempting to take what it learned working with the federal government — data analytics, cybersecurity and international sales— and apply it to the private sector.
Case in point: The company’s experience in building military command centers was valuable in the creation of MLB’s center for instant-replay analysis. Booz Allen built the league a high-tech situation center in New York City, where baseball experts rule thumbs up or down on close plays at ballparks across North America. After Booz Allen helped MLB build the center, the firm showed how to operate it as well.
“Some of these are original ideas,” Rozanski said. “But a lot of it is taking technologies that we or others have been using and repurposing them to solve a new problem. We are doing work with the NFL around concussions and putting sensors in helmets and using our data capability to understand the impact of that.”
The company’s work on government security has also helped it win contracts with private companies for matters such as cyberdefense. It helps one global brand client monitor round-theclock threats.
“They realized they had a company with a lot of capability and technologies that were increasingly leverageable in the commercial marketplace,” Copeland said.
The new Booz also acquired other companies, something it rarely did in the past. In the past three years, it has launched an engineering service with the purchase of a piece of ARINC, whose work includes protecting Washington’s airspace from another 9/11 attack.
It bought Boston-based called Epidemico, a health-analytics company that uses Facebook, Twitter and other social media to track outbreaks of diseases such as Ebola.
The new Booz wants to take that product and sell it in other sectors. One possibility would be auto companies instantaneously identifying safety issues that could lead to recalls. It could also help law-enforcement with the early detection of illegal drugs or designer drugs such as synthetic marijuana.
“There are synergies between what they do in these business that they haven’t even discovered yet,” Copeland said.
Booz Allen has created an innovation team, which is taking the work for individual clients and packaging it for others to buy, even online. These products can range from a portable fingerprint analyzer for on-site policing to an online course for data geeks, which Harvard Business Review calls “The Sexiest Job of the 21st Century.”
Rozanski is hardly at the helm of a sexy company, but it is one that is changing rapidly to stay relevant.
“This is a business that got to be 100 years old not by being the same but by changing all the time,” he said. “Whatever speed makes you win an Olympic medal one year, barely qualifies you for the team for the next Olympics. If we are going to continue to lead and stay on top of this industry, we are going to have to continuously evolve.”
Booz Allen’s experience in building military command centers was valuable in creating Major League Baseball’s instant-replay analysis center.
Major League Baseball’s replay operations center in New York was built by Booz Allen. “Some of these are original ideas,” Booz Allen chief executive Horacio Rozanski said. “But a lot of it is taking technologies that we or others have been using . . . to solve a new problem.”