Booz Allen re­turn­ing to its roots, with a twist

It’s now con­sult­ing with com­mer­cial clients and help­ing run parts of firms

The Washington Post Sunday - - BUSINESS - BY THOMAS HEATH

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 . . ....

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