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By Nick Wakeman

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Nick Wakeman

Jumper's lament: SAIC won't grow without split

John Jumper lived up to his reputation as a straight talker Thursday morning, when he told the audience at the Northern Virginia Technology Council Tech Titans breakfast that Science Applications International Corp. just can’t grow with its current structure.

That’s the drive behind the company’s decision to split into two separate companies.

Since it’s founding in 1969 by Robert Beyster, SAIC has hired entrepreneurial individuals, and equipped them to build and grow a business.

“As long as you are growing your revenue, you’re fine,” Jumper, former chief of staff of the Air Force said. He took the reins at SAIC in March. “But that’s how SAIC ended up with 10,000 contracts and almost as many missing patrols.”

The model that Beyster loved, and that saw SAIC become a $6.4 billion company when he retired in 2004, just doesn’t scale, according to Jumper. (I think Beyster would disagree – see my earlier blog.)

“We can’t grow,” Jumper said. The company currently has $11 billion in annual revenue.

The decision to split came from a short list of alternatives, and the move frees both the high margin science and technology business and the lower margin IT and technical services business from organizational conflicts of interest restrictions.

Unencumbered by OCI concerns, both businesses will be able to pursue more opportunities and a broader customer base. The two businesses also will be structured differently, particularly the IT and technical services business, so that it can be more competitive.

Jumper said that decisions on leadership for the new company and its headquarters location will be announced soon. The Northern Virginia crowd applauded when he told them the headquarters for the new business would be close to SAIC’s Tysons Corner, Va., location.

The company is approaching the split and the myriad adjustments and movements the company must go through as a project, which they are calling Gemini. Doug Wagoner is leading that effort, which makes me wonder if he is in the running for the leadership role in the new company.

While the decision to split caught many people by surprise, Jumper said that the employees knew something had to be done. “I think there is a sense of relief now that they know what will be done,” he said.

Some of the other highlights from his talk include:

Sequestration. It is a growing risk, though he believes it will be delayed. He doesn’t think the lame duck session of Congress will have enough time to pass a longer term solution.

Cybersecurity. “People don’t understand the threat,” he said. Firewalls no longer provide the level of protection they once did. “It’s not about playing goalie anymore; it’s about managing the threat.”

Next big business opportunity. There will be few to no new major systems being bought by the government, particularly defense. The opportunity is in integrating the systems that are in place so they can share information and lead to better decisions.

His acting career. Jumper had a small role in an episode of the science fiction show, Stargate, when he was Air Force chief of staff. The part was a real stretch; he played the Air Force chief of staff in the Lost City, Part 2, episode when aliens appeared in the Oval Office at the White House during an attack on Earth.

Posted by Nick Wakeman on Sep 27, 2012 at 9:52 AM

Reader Comments

Mon, Oct 1, 2012

@Nova: Given the Darwinian wrangle that's SAIC today, it's safe to say they're already competing. So the correct answer to your question is "one picosecond after the split" - the company has neither the knowledge or ability to leave the field they've been plowing for all these years. So they'll just follow the same ruts and cut the same furrow. Will be *very* interesting to watch the market reaction as $AIC7B and $AIC4B chase each other inside the Federal space.

Mon, Oct 1, 2012 Nova DC

Presumably, old-timers with Beyster's entrepreneurial spirit will land in both companies. One wonders at which point the two companies will begin to compete against one another.

Sun, Sep 30, 2012 oldschool

The reason why SAIC "just can't grow" is that management dismantled the very entrepreneurial business model that incentivized and inspired growth for 35 years. SAIC's problems in recent years have been the product of an incompetent Board of Directors who merely rubber stamp the Chair and executive teams composed of mediocre managers incapable of original thought, who simply implement whatever the latest business-speak bestseller is touting. Stemming the dramatic brain drain that has been occuring for several years now will require innovative, visionary leadership - if it isn't already too late.

Fri, Sep 28, 2012 longtimer

Shareholders should have wised up over 7 years ago and removed Young from the board. He's demonstrated over and over again he had no clue what type of company SAIC was and has hammered it into a square hole. The "company can't scale" mantra has been around since we were at $1B in revenue yet we continued to grow. It's a funny thing - when you provide real solutions to your customer they keep coming back.

Fri, Sep 28, 2012 testpilot DC

How did we get here? SAIC is being managed by a bunch of simpletons who are trying to dilute the corporation into a staffing company. SAIC at $11B sales is only a fraction of the size of defense contractors like Lockheed. They haven’t reached a saturation in contracts or conflicts of interest, it’s just easier than creating a culture of creativity and innovation.

Shareholders had better run, splitting the company will result in double the administrative overhead and branding expenses without doubling the sales revenue.

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