Tight budgets, tougher competition drive change for the Top 100

Sequestration, budget cuts, contract delays and uncertainty are all watchwords for government contractors today as they face a dark and troubled market.

At the same time, there are cybersecurity, mobility, cloud computing, big data and health IT. Those technologies are revolutionizing how the government operates and are a boon for any company that has mastered them.

That’s the dichotomy of today’s federal market: tough economic conditions coupled with some of the most promising technologies in a generation.

The companies in the 2013 Washington Technology Top 100 are both beneficiaries and victims of today’s market conditions. Up and down the list are companies that have seen their market share shrink in some areas and grow in others, if they are lucky.

The annual rankings measure the largest contractors in the IT and systems integration space and are compiled through an analysis of agency spending reported to the Federal Procurement Data System–Next Generation. We used nearly 800 product and service codes to analyze government spending on IT, systems integration, professional services, engineering services and telecommunications in fiscal 2012.

For the 19th consecutive year, Lockheed Martin Corp. is ranked No. 1 on the list, with $14.9 billion in prime contracts.

But that consistency belies what is going on under the surface with Lockheed Martin and others. The experiences of companies throughout the rankings show that change is a constant. Depending on the company, the change can take multiple forms and include leadership moves, ventures into new markets and restructuring.

A season of change

In the past 18 months, the market has experienced a remarkable turnover in leadership — starting with Lockheed Martin, which saw CEO Bob Stevens retire and Marillyn Hewson take his place. Stevens remains chairman for now but will turn that title over to Hewson this year.

General Dynamics Corp. (No. 6) also has a new chairman and CEO in Phebe Novakovic.

Other Top 100 companies with new CEOs include CSC (No. 9), CACI International (No. 12), IBM Corp. (No. 21), US Investigations Services (No. 51), Artel LLC (No. 67) and GTSI Corp. (No. 86).

The layer below the CEO also saw tremendous changes, with Lockheed Martin losing Linda Gooden, executive vice president of its Information Systems and Global Solutions group, to retirement. She built the company’s IT business from a few million dollars in annual revenue to an $8 billion enterprise.

Northrop Grumman Corp. (No. 2) and General Dynamics also have new leaders for their information systems businesses. Others that made leadership changes in their government business units include CSC, IBM, AT&T (No. 17), Accenture (No. 25) and QinetiQ North America (No. 42).

Some of the leadership changes were the result of retirements and careful succession planning. Others were driven by dissatisfaction with results and strategic direction.

Few companies made as dramatic a statement as CACI, which forced out CEO Dan Allen. He was the handpicked successor of the previous CEO and had been on the job less than a year. But results for the company had dipped and the market was changing rapidly, so the company’s board and longtime Chairman Jack London felt a new leader was needed who had stronger business development skills. The company brought in Ken Asbury.

The need for stronger business development points to several changes in the market that include increased pressure on incumbents to win recompeted contracts and more intense competition for new work.

Asbury has moved quickly to restructure CACI’s business development operation, which now reports to him. He has also moved capture managers and business development executives into individual business units so they can be closer to customers.

“Now those folks are able to develop a longer-term set of relationships with the customers,” Asbury said.

Closer relationships are essential for winning new business opportunities and holding onto current work.

Structural moves

Many companies on the Top 100 are also tweaking the structures of their business operations to lower overhead costs and streamline operations. Some, such as Raytheon Co. (No. 4), have combined units to become more efficient while others, such as Lockheed Martin, have created new operating groups to focus more closely on those markets.

Still others have spun off entire businesses. A case in point is Engility Corp. (No. 87), which provides professional and technical services and was part of L-3 Communications. A couple years in the making, Engility emerged from L-3’s shadow last July as a publicly traded company with about $1.7 billion in annual revenue.

Concerns about organizational conflicts of interest were a major driver for the spin-off. Now L-3 and Engility are free to pursue more opportunities, which is critical in today’s tighter market.

Similar reasoning is behind the split of Science Applications International Corp. into two companies. The high-end science and technology business will become Leidos, while the IT and technical services business will retain the SAIC name.

That split is expected to be completed sometime this year. Leidos will have about $6.5 billion in annual revenue split between its health, engineering and national security work. SAIC will have about $4.7 billion in technical and engineering services and enterprise IT work.

John Jumper, current SAIC chairman and CEO, will lead Leidos, while Anthony Moraco will become CEO of SAIC. Both companies will be sizable competitors in their respective markets and both will likely hold places on the 2014 Top 100.

With new leaders at so many companies, more changes in personnel and corporate structures will likely occur in the coming year.

Newcomers

The number of new companies coming onto the Top 100 generally hovers between 10 and 15 each year. This year the number was 14. Among them is TASC Inc. (No. 59), a company with a long history in the government market.

Although it was founded in 1966, TASC had been a subsidiary of other companies from 1991 until late 2009 when Northrop Grumman sold it to address organizational conflict-of-interest concerns.

Its entrance onto the Top 100 is noteworthy because TASC primarily works with intelligence agencies. That business is not included in the Federal Procurement Data System and hence does not count toward the Top 100 rankings.

The company has expanded its non-intelligence work through a series of contract wins. It earned a position on the General Services Administration’s Mission-Oriented Business Integrated Services schedule and has won task-order contracts with the Defense Information Systems Agency and the Department of Homeland Security.

CEO David Langstaff said another opportunity for TASC is expanding its systems engineering offerings into new areas as the government looks for ways to reduce costs and operate more efficiently.

“It is systems thinking, which we clearly need more of as we try to get more with less dollars,” he said. “Customers are weighing mission success and critical requirements against cost, and we can help them make those trade-offs so that mission success isn’t compromised.”

What’s next?

Judging by the comments of Langstaff and other executives, the downward pressure on the government market might not have ended, particularly given the still unknown impact of sequestration.

2013 might not be so bad, but “2014 may be more challenging,” said Dewey Houck II, vice president and general manager of the Information Solutions organization at Boeing Co.’s Network and Space Systems.

David Zolet, executive vice president and general manager of CSC’s North American Public Sector, said that whether it is sequestration, continuing resolutions or budget controls, “our clients are going to have to learn to do more with less.”

And contractors are doing the same.