Integrators Create New Ways to Expand Business
Some integrators have begun to evaluate alternatives to mergers and acquisitions as tools to diversify revenue channels
Mergers and acquisitions have emerged as the most common way for companies to further their penetration in an existing industry segment and to expand into new business areas. The consulting company Broadview Associates in Fort Lee, N.J., noted a significant increase in merger and acquisition activity among information technology companies last year, more than doubling to $58.5 billion compared with 1993.
But those types of consolidations require deep pockets, which make them less attractive to some companies. Nevertheless, systems integrators have discovered some unique ways of diversifying their business base in the federal sector, jumping into the commercial market and launching overseas operations.
Try before you buy
He's been called Crocodile Dinte in the executive search industry. But Australian Paul Dinte insists the business he founded in McLean, Va., does more than just search for high-powered executives. A leading company in the burgeoning interim executive placement market, Dinte Resources Inc. works closely with its integrator clients to identify their business strategies, various options to achieving their business goals and the best course of action. "It is not just a people sell. It's an expertise sell," Dinte said.
Integrators typically do not look for an interim executive to fill a vacancy. Instead, the company recognizes it needs certain expertise to fix an existing problem or to take advantage of new business opportunities. The executive acts as a consultant, but the integrators get someone with practical experience in a particular area they want addressed and not someone who simply will leave behind a glossy report at the end of the contract, Dinte explained.
Integrators depend on the executive to affect change. Their philosophy, he said, is "if you don't know how to improve our bottom line, don't apply." Infotech companies today face the challenge of applying technology that is always changing. "So they need to be more nimble. That's why they need to hire talent for six months or so," Dinte said.
An interim executive can evaluate the viability of moving into new business areas, such as launching international operations, diversifying a company's defense-civilian business mix or transitioning from the federal to commercial market. Integrators, on the flip side, save themselves from the cost and commitment of hiring new staff and setting up a new organization to pursue new market segments.
So who are these executives for hire? Dinte said they aren't just retired executives trying to stay in touch with the business world but individuals, some of whom have steady work, looking for innovative employment opportunities. With the recent recession and massive layoffs at information technology companies once considered the old standbys, such as IBM Corp., no executive feels secure.
The interim assignments allow executives to continue developing their professional skills with a flexibility they may not have had in their permanent jobs. The temporary stint sometimes leads to a full-time slot. For the integrator and the executive, the arrangement allows them to test drive each other.
Finding team partners
As Dinte scours the infotech community for the right person, Earl Holland hunts for the right corporate partner for his integrator clients. Holland cofounded BJ Concepts in Clifton, Va., with his wife, who serves as president. The company links large, mainstream integrators with small, diversified businesses such as 8(a) and minority-owned companies.
The Hollands help the integrator identify weaknesses in its revenue channels and select a teaming partner that already has a hold in the market the integrator wants to pursue. For example, a mainstream integrator may want to expand its defense business to include more work with civilian agencies. A diversified, smaller firm already holding contracts with some civilian agencies may be the key.
But for an integrator to find the right small firm, the needle in a haystack, would distract the company from its core strengths and business. So the Hollands do extensive searches through several databases, including those at government agencies, to find diverse businesses that match an integrator's requirements. They perform the requisite due diligence, verify the company's technical expertise, develop a company profile and arrange for a candidate company to meet with the integrator.
Once a partnership between the integrator and diverse company is established, the Hollands continue to provide marketing and other consulting services as required by the two businesses. "The relationships," Earl Holland stressed, "are not meant to be formed for a short period. And they are not made overnight." The cultural differences in the way the two companies operate present unique challenges, and BJ Concepts provides consulting support to get through the transition period.
For the small companies, the arrangement presents a chance they never had before to work with a big integrator. The Hollands give them the access, and the unique twist is that the integrator approached them, not vice versa. The diverse companies can develop a relationship with a worldwide integrator that can offer technical and professional expertise that they otherwise could not afford.
Because the diverse companies often qualify for set-aside or sole source, non-competitive contract awards, the prime integrator faces less competition as it expands into new business areas. "These relationships help build the pipeline of a new business base for mainstream companies," he said. That is why the couple targets senior people at integration companies, the individuals with revenue responsibility such as the CEO or vice president of business development, because the partnership goes beyond the pursuit of one contract.
Traditionally, these relationships have come about because an integrator has a particular contract in mind, and the company scrambles to find a diverse business with which it can team to avoid full-scale competition. The idea behind the company, he noted, is to position the companies before a contract opportunity even arises. "I never promise anyone contracts. What I'm going to deliver is opportunity and access," he said.