Panel: Diversify portfolio for market leadership

To succeed in the defense and information technology sectors, companies must act boldly when it comes to making investments, diversify as much as possible and find ways to make themselves stand out from the pack, said a panel of financial experts at a technology forum this week in Washington.

The take of the industry outlook panel at the Government Electronics and Information Association event was that businesses should stick to their core capabilities but at the same time take fierce intellectual risks to expand their businesses and make their products and services familiar to the government and the taxpayers.

Martin Bollinger, a senior vice president with Booz Allen Hamilton Inc., used surfing as a metaphor for the predicament many companies face. They are like surfers waiting to get atop a wave, he said. They rise and dip with the waves, but don't move forward.

The panel cited New York-based L-3 Communications Corp. as one of the clearest examples of what companies must do to succeed. L-3 managed to grow rapidly to become one of the top defense companies in the nation. Through a strategy of strong organic growth and well-chosen acquisitions, L-3 rose from a company with annual revenue of $650 million in 1997 to $12.4 billion in 2006.

One clear opportunity that companies should latch onto, Bollinger said, is helping federal agencies manage and lower the risk associated with major government projects. With that in mind, any investment in risk management capabilities is a wise step, he said.

But the threat of a backlash against outsourcing works against companies, the panel said. Also, Congress can pass overbearing laws, intended to respond to abuses or loopholes but causing unintended consequences for defense and information technology companies.

Fortunately, a large number of the companies in the government IT and defense sector have strong cash flow for acquisitions and other strategic initiatives, said Frank Finelli, managing director with The Carlyle Group.

Finelli said foreign companies are strongly attracted to U.S. government defense and IT opportunities.

"U.S. defense assets may have a bulls-eye on them [from] foreign investors," he said.