Leidos takes top spot on 2017 Top 100

Few companies have gone through these kinds of transformation in recent years. You would think that orchestrating a split of its heritage company, Science Applications International Corp. would be enough.

With that split in 2013, SAIC changed its name to Leidos and the portion spun off retained the SAIC name. Both companies retained their status as top 20 companies in Washington Technology’s annual Top 100 rankings.

But three years into its new Leidos identity, the company turned that branding effort on its head last year when it made one of the biggest pure play IT deals ever in the market with the $5 billion merger into the former Lockheed Martin Information Systems and Global Services segment.

The move catapulted Leidos from No. 16 on the 2016 rankings to No. 1 on the 2017 Top 100.

The rankings are a minor part of the transformation. Size does matter here as Leidos is by far the largest pure play IT company on the Top 100 with $6.9 billion in prime contracts during fiscal year 2016. The next closest pure play is CSRA at No. 7 with $3.9 billion.

The chatter in the market after the deal was announced included a lot of comments about why did Leidos need to be so large.

But for company executives the reasoning is clear.

“We now have the ability to pursue any program in any country in the world,” said Gerry Fasano, executive vice president and chief of business development and strategy at Leidos.

Fasano came to Leidos from Lockheed and was charged with managing the separation of IS&GS from its former parent.

In the beginning, it wasn’t known whether IS&GS would be acquired, spun out as its own entity or merged into another company.

When the decision was made to merge with Leidos, Fasano led that effort with Leidos counterpart Mike Leiter.

One decision that was made early on by Leidos Chairman and CEO Roger Krone was that this wasn’t going to be a takeover but a real merger, Fasano told Washington Technology.

That means that if a Leidos person was picked to run an operation, then a Lockheed person was picked as a deputy, and vice versa.

“We were looking for the best athletes,” Fasano said.

Another goal was to create agile and adaptable organization, which seems almost an impossibility for a company with total overall revenue now above $10 billion and 32,000 employees.

But Fasano explained that the corporate infrastructure – those reporting directly to Krone – is relatively small. “I think you can count them on two hands,” he said.

The company has a four-page document known an authority to operate that guides when decisions need to flow up in the organization. If it is a large opportunity, it’ll flow to Krone’s level. But if it is something under $100 million for example, the decision can be made lower in the organization.

There are only four basic levels in the organization, Fasano said:

• The CEO
• Group presidents: civil, defense and intelligence, health and advanced solutions
• Divisions under the president
• People

“The culture of Leidos and SAIC was lean and people had the authority to make decisions and operate at the lower levels,” Fasano said.

With the addition of Lockheed, Leidos is retaining that decentralized authority but also adding the discipline and structure from Lockheed that is need to pursue large government programs, he said.

One of the big opportunities the company sees is in the area of IT modernization and here the company plans to pursue a large Navy effort. Neither Leidos nor Lockheed had the qualifications alone to bid on that but as a combined entity they can, Fasano said.

If Leidos and Lockheed hadn’t merged, they likely would be subcontractors on a team pursuing the work, he said.

Fasano declined to name the opportunity and wouldn’t comment on whether Leidos plans to bid as a prime on the next iteration of the Navy Next Generation Network contract currently held by DXC Technology. The contract is estimated to be worth $3 billion to $5 billion. Leidos (through the merger with IS&GS) is a teammate to DXC on the current NGEN contract.

One of the reasons Lockheed decided to divest the IS&GS business was because it was getting more difficult to compete with a cost structure associated with Lockheed’s platform business. But now that it is freed from that and part of a pure play services operation, the cost structure has come down significantly.

“We are extremely pleased with our costs,” Fasano said. “We are much better positioned to compete.”

Some of the key market areas that Leidos is pursuing include the FAA, health care, IT modernization, cybersecurity, C4ISR and energy.

While Lockheed IS&GS and Leidos were in some of the same market areas, there was very little customer overlap, Fasano said.

In health for example, Leidos had a strong position at the Defense Department, where it is the integrator for the DOD’s Military Health System Genesis project, a $4.3 billion contract for a new electronic health record system. IS&GS, meanwhile, has a strong presence at Veterans Affairs.

There is opportunity to pull capabilities and skills across the organization and bring new offers to current customers as well as winning over new customers, Fasano said.

Leidos has moved quickly to integrate operations and the main items left are finance and accounting systems. “We knew we had a limited window so we’ve acted quickly,” he said.

Part of that has been a massive communication effort that includes a weekly call with 1,000 company leaders, who are briefed on what is going on and then they take the message to their people. Leidos also relies on its internal social media network known as Prism, where people can talk about what they are working on, where they might need help and offer help to others.

Krone is active on the network as well, engaging directly with employees at all levels of the company.

Moving forward, Fasano said a key to the company’s success will be its relationship with customers.

“We need to look for where we can get in there and solve their hard problems,” he said. “When we have that opportunity that’s when we can leverage all of these great capabilities we have.”