No. 11: Booz Allen faces transition

Possible split of government and commercial business looms on the horizon

Booz Allen Hamilton Inc.

Top 100 revenue: $2.4 billion

2007 revenue: $4.1 billion

2006 revenue: $3.7 billion

Employees: 19,000

http://www.bah.com

Booz Allen Hamilton Inc. and other leading
government contractors are facing a series of
uncertainties this year.

There are tight budgets, a new administration
in January and growing skepticism of
contractors on Capitol Hill.

For Booz Allen, there is also deciding
whether to keep its commercial and government
businesses together or break up the
company.

"We do a lot of work across a broad spectrum,"
said Ralph Shrader, chairman and
chief executive officer of the McLean, Va.,
company that ranks No. 11 on the Top 100
with $2.4 billion in 2007 prime contracting
revenue.

"While the diversity of our business base
has served us well, we need to evaluate
what the best organizational structure is to
serve diverse bases," he
said.

Shrader, who has been
CEO since 1998 and has
put together a string of
years with double-digit
growth, said the Carlyle
Group investment firm is a
potential buyer. But he
emphasized that the separation would happen
only if it were in the best interest of the
firm.

"The operating models to serve the U.S.
government are dramatically different than
those for the commercial market," he said.
"We are by nature a management consultant
? it's our job to examine opportunities ? so
we've been doing it for ourselves."

Shrader downplayed as hype concerns
from some industry observers that a
new administration would make radical
changes in critical market segments
such as the intelligence arena.

"Early in my [34-year Booz Allen]
career, when we were a smaller organization
with fewer clients, we were much
more fearful about administration
changes," he said. "My experience tells
me there may be changes in personality
and priorities, but there will still be a
very strong need for the kind of services
we provide."

Shrader is equally bullish about
large, complex, industry-managed
defense contracts. Congress has passed
legislation banning, beginning in 2010,
any so-called lead systems integrator
arrangements. Major projects ? such
as the Coast Guard's Deepwater led by
Lockheed Martin
Corp. and Northrop
Grumman Corp. and
Future Combat Systems
managed by Boeing
Co. and Science
Applications
International Corp. ?
have run into trouble.

Although Booz Allen has done some similar
integration work, especially developing
requirements for Defense Department space
programs, Shrader said the increased congressional
oversight can only benefit both
government and industry. "It's something we
welcome."

But such oversight might signal a reboot of
defense space systems, which in recent years
have been vexed by cost overruns, technical
failures and schedule slippage. "Outcomes
have been so disappointing in some cases
that DOD has had to go back to the drawing
board," the Government Accountability Office
reported in March.

"I'm not sure it's a problem with the way
the requirements are being written or with
execution," Shrader said. "My perception is
we're not dealing with requirements problems
but with implementation problems.

On the implementation side, obviously
there have been issues and disappointments."
But, he added, "that's an area
where we've not been affected greatly as
a contractor."

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