SAIC's Beyster Takes Road Less Traveled

SAIC's Beyster Takes Road Less Traveled

J. Robert Beyster

After 31 years building a company that now generates $5.5 billion in annual revenue, J. Robert Beyster, 76, still isn't ready to start shopping for a rocking chair. There is too much to do.

The founder, chief executive and chairman of Science Applications International Corp. of San Diego is still very intent on leading his company as it pursues business in hot areas like optical networking, Internet telephony and electronic commerce as well as its traditional work in systems integration and telecommunications.

But Beyster does not run SAIC as a dictator. He can't. He owns barely more than 1 percent of SAIC's stock. The remainder rests in the hands of the company's 40,000 employees, making SAIC the largest employee-owned high tech company in the United States.

"That makes it hard to run at times," he said, laughing. "But it really is their company, and they have a lot to say about it."

Beyster recently spoke with Senior Editor Nick Wakeman about how SAIC has changed, what has worked well and what lies ahead.

WT: The stock market has experienced tremendous growth in recent years. How has that impacted employee ownership?

Beyster: When the dot-com companies didn't exist, and we tried to assess our value [to establish the internal stock price], the appraiser could always find someone else to compare us with. But since the stock market has gone crazy, this is harder to do. Most of SAIC can be evaluated the same way it was before, but anything that has anything to do with the Internet is priced totally differently.

That is why we had to take Network Solutions and take it public, which I normally wouldn't have done. But it was the only way to figure out its value. I really hated to see us migrate part of the company into the public marketplace. But we did.

We are going to have to do more of that. Not because I'm looking forward to it, but because we can't figure out what the value is of those parts of the company.

WT: What areas are you looking to spin out as publicly traded companies?

Beyster: Things like Internet telephony and optical networking. There is an ongoing convergence of networking technologies, and we are in the thick of it. The voice, data and video networks all can co-exist on the same network, using Internet protocols.

We've done this internally, where we took our internal data network and turned it into a voice network. It wasn't that hard to do. We are doing it for some government customers. We are doing it for some carriers.

There are huge cost savings when you do this.

WT: How does not having a publicly traded stock affect your ability to recruit and retain employees?

Beyster: If people really have a strong desire to make a lot of money and make it fast, then SAIC never has been the right place to come. We just aren't that way.

Our stock price has gone up over 31 years, by a compounded annual rate of 18 percent to 20 percent. In the last few years, the stock price has gone up even faster. So we really haven't lost a lot of people.

You can do quite well here, and most people in the company are really interested in their work primarily and aren't that interested in making a large amount of money. They'd like to make more money, obviously. [Laughs] Everyone probably does. But they aren't that interested in making a big killing.

WT: Why has employee ownership worked so well for SAIC?

Beyster: We have a different form of employee ownership than is common. Most employee-owned companies are employee stock-ownership plan companies, where most of the stock is in the retirement plan. People don't have access to the stock, so they lose a feeling for the stock. They don't have certificates, they can't sell it, they can't buy more when they want to.

But here, we have a flexible stock program. The stock is owned by the employees. We have some in the retirement plan, but an awful lot is owned directly.

In our case, it is owned primarily based on a number of things, but performance covers most of it.

If you performed well someplace else, and we want to attract you, we give you a good stock offering. To keep people, we build up their holdings in what we call Glue, where if they leave, they would lose a lot of money.

People like the system. They like the fact that we are making a strong effort to distribute the ownership on the basis of performance, not on the basis of cronyism or something like that.

Employee ownership has made a huge difference. It really is a different culture.

WT: How has it affected the culture?

Beyster: The sharing of information, the sharing of ideas, the sharing of the rewards and the sharing the credit are ingrained here. Teamwork is more ingrained in this kind of company than in other companies.

People make sure the right people get recognition and are recommended for awards. People take care of people who perform at the company.

You never have enough teamwork and cooperation, but we have an awful lot.

WT: Some have criticized SAIC for having a decentralized structure with many separate business units. Why do you like it that way, and do you worry about competition between the units?

Beyster: There are a lot of parts to the company, some are quite large, some are small. Many companies wouldn't let a group of people set up a division of say 10 people and specialize in something. Here we will.

The economics may not be as good as setting up a 1,000-person division, but creative people like to work together in small groups, and they can accomplish many, many things. And there are agencies, particularly in the government, where they want that to happen. They want to deal with a group that is the same and stays together.

A good thing about this system is the fact that the technology is changing so fast, if you didn't have this flexibility, you couldn't respond. There is enough flexibility here that you can always put together a team and go after something.

Competition inside SAIC is much less than other companies. We try to make sure the accounting system, the financial reward system, is set up so we motivate people to cooperate.

It makes a huge difference to have smart people in the finance end of the company, because they facilitate the things you want to do. If you don't set it up right, your people won't cooperate, and they'll be pitted against each other for financial reasons.

WT: You own just more than 1 percent of SAIC's stock. Have you ever worried about not having control?

Beyster: I've never had a problem with that. That doesn't mean there hasn't been criticism or that there haven't been people incredibly upset with me. There always have been, in the early days and now and in between. A lot of times they were right and I was wrong.

The best you can do is be motivated by what you think is right for the company. If people in the company feel that you are trying to control something because it is the right way for the company to go and not for some personal objective of yours, then you are going to be OK.

Control is what causes problems with people adopting employee ownership. They worry about employees exerting too much control.

WT: What challenges do you see facing SAIC and the rest of information technology industry?

Beyster: What keeps me up at night is recruiting. We have to be very careful about the people we bring in so we can maintain the quality of our staff, because the problems we are working on are getting harder, not easier.

We have done things that a number of companies have done, like opening our Web sites to recruiters. About 40 percent or 50 percent of our new hires come through the Internet. But you don't really hire the senior management or even down a level or two that way. So that is the challenge: finding experienced people to run tricky contracts.

Another thing that is tough is keeping up with technology. It's a disaster if you miss something. It used to be you had a little bit of a chance to recover, but you have less of a chance now. It is over and done, and somebody else has scooped you on some very important technical and innovative approach to a problem, particularly in areas such as optical networking, which is really booming these days.

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