TOP 100: Serco's 'monster' 2019 was years in the making

Serco Inc. is coming off a strong year – a “monster year,” according its CEO Dave Dacquino – with 20 percent organic growth and the closing and integration of a major acquisition in the Alion Science & Technology marine engineering and sustainment business.

“It’s vaulted us to a different level,” Dacquino said.

The company is ranked No. 35 on the 2020 Washington Technology Top 100 with $869.5 million in prime contracts.

Serco’s overall revenue, which includes intelligence work and subcontracting work not counted toward the Top 100 rankings, was $1.2 billion in 2019, up from $860 million year before. The increase was fed by the 20 percent organic growth as well as the Alion acquisition. Profits also grew.

Getting to that level of success was not an overnight occurrence but something that took several years of planning and effort, Dacquino said.

“We walked away from LPTA work,” he said, referring to lowest price, technically acceptable contracts, where price is the deciding factor. “It’s just not a customer we want to pursue if it is just LPTA. That’s the biggest change.”

The success also reflects the choices Serco made in 2017 and 2018 to pursue larger programs with higher margins. This kind of work also reinforces for employees that Serco offers an upward career path.

“When I came on board [in 2017], we as a team got together and said, where are our holes? Where are we short? What are the capabilities that are not allowing us to chase this higher kind of work?” he said.

From that candid look, the company made several decisions. As mentioned, it started walking away from the LPTA work and it started filling those capability holes through partnerships, acquisitions, and hiring the right talent, Dacquino said.

“In the past, we were just saying, let’s bid lower and then we’ll win the work, but that’s not a successful formula,” he said. “It was a change of philosophy and we lost some people as a result of that but we also got some new, great talent.”

The company realized it had to take some risks and it had to invest in people, technologies and partners.

The payoff has been some large single award contracts such as a five-year, $162 million Navy contract to support the Amphibious Warfare Program Office and a $57 million U.S. Space Force contract to support a deep space surveillance system.

The company has also won positions on several large contracts where it will compete for task orders to support unmanned surface vessels for the Navy and communications networks for the Army, for example.

The wins are bringing opportunities for Serco to work on engineering sustainment for submarines, operational testing of unmanned systems and much broader sustainment work.

The Navy wins, in particular, are important given the investment the company made when it acquired the Alion business in August 2019 for $336 million. In 2018, Serco also acquired BTP Systems, in a move to add more C5ISR offerings.

“Now we are bidding real sustainment work that is much broader because we have the engineering component [from Alion] and our legacy work,” he said.

Acquisitions will continue to be part of Serco’s growth strategy, possibly another buy to bolster work with the Navy, the company’s biggest customer. “But we are very judicious about our acquisitions,” Dacquino said.

The company has two threshold questions to answer before making a deal. They have little to do with simply bulking up: What capability will the acquisition bring? And how does that new capability combine with Serco’s current capabilities to allow both companies to bid on something new?

One area of interest is in the case management business. “We’re potentially interested in additional acquisitions there so I think you might see one of those fairly soon,” he said.

As have other CEOs, Dacquino has taken a keen interest in social justice issues since the death of George Floyd and what that means for his company. Diversity is something he’s long been interested in. He added the first two women to the board of Serco Inc. shortly after he became CEO. A third was added in June.

Dacquino also pushes back against those who complain about diversity hires not having the right skills or experience or “the right tool box.”

“But this candidate that I hired that’s diverse and different from us, has another whole tool box with whole different set of tools and when you combine those two things together, that richness of ideas and discourse is what will make Serco successful as we go forward,” he said.

Simple diversity isn’t enough. “It’s not just hiring people with different backgrounds. It’s making sure they’re engaged in dialogues so they can bring that other toolbox and other tools to the solution set,” Dacquino said.

Another issue many companies are dealing with is the continuing impact of the COVID-19 pandemic. Given its customer mix and requirements, 60 percent of Serco’s workforce did not switch to remote work. But for the 40 percent that did, Serco has stepped up its use of social media and collaboration tools.

Serco also has invested in online training through LinkedIn and professional certifications such as Program Management Professional. The company also created a “work well” series to support home-based workers with a multitude of concerns.

“It’s helped us as an organization work better together,” he said.

Dacquino expects 2020 to be better for Serco than 2019. “I attribute that to innovation,” he said. “People aren’t daunted by change anymore. They’ve gotten more creative and courageous.”