CACI CEO on weathering market uncertainty
If one lesson has been hammered home, or should have been over the last several years, is that there are many factors in the government market outside of the control of government contractors.
These factors have included sequestration, budget cuts, procurement delays, bid protests and lack of visibility into the market. The severity of these factors has ebbed and flowed over the years, but they are all there and all have had an impact.
I recently spoke with Ken Asbury, CEO of CACI International, about how his company is faring and what actions they have had to take and how recent market conditions have changed CACI.
“We started with a premise: What can we control ourselves?” said Asbury, who became CEO of CACI in February 2013 just days before sequestration cuts began to take effect.
Where that question led the company offers lessons for nearly everyone on the market, and I’m sure many other companies have taken similar steps.
CACI puts its focus on delivery, its cost structure and business development.
Competition was on the rise, and not just because of the budget cuts. The drawdown in Iraq and Afghanistan was bringing in new competitors who had grown large overseas but were now aggressively looking to compete for more U.S.-based work.
The government was turning to lowest price, technically acceptable contracts, so costs had to come down.
“We had to address rates, we had to address our infrastructure,” he said. “There were a lot of things that when you are growing, you don’t pay as close attention to.”
One move by CACI that proved to be unpopular was coffee. The company stopped buying it. “It wasn’t popular, but I explained that what we spend on coffee each year was 10 people’s jobs. What’s more important?”
While the company did lay off workers, it didn’t look at layoffs as a strategy or announce a goal it wanted to reduce its headcount by. “We knew it was going to be critically important to keep our people engaged because they are doing critical missions for our customers,” Asbury said. “We didn’t want them thinking about what their job was going to be.”
The company also looked at reductions to its facilities and buildings.
Once that process was under way, attention turned to business development.
“We always had good BD operations,” he said, “but we knew the environment was going to be tougher.”
The company also tended to be more opportunity-oriented, focusing on what was coming next. “We knew we had to change that and be more strategic,” Asbury said.
The companies that win under any circumstances are ones that understand the market, know what their customers are buying and why, where their customer’s money is coming from and who is making the decisions.
“We want more solutions, more fixed-price contracts, and we want larger assignments,” Asbury said. “We didn’t talk it about as a switch, but as a rheostat, where you continually turn up the gain.”
The company put in multiple levels of reviews for new business opportunities. “We made sure that our people understood that growing the business was the only way to find our way through a depressed market,” he said.
The company brought in new business development executives, including Donald Fulop, executive vice president of business development. Fulop, according to Asbury, is as much a teacher as a leader.
The company also made its biggest acquisition when it acquired Six3 Systems in October 2013.
The shift toward solutions has been paying off. Since 2013, the percentage of solutions work as opposed to services work has grown 5 percentage points and now represents 45 percent of CACI's revenue.
Part of the shift toward solutions and larger contracts is that the company is bidding on fewer contracts but a higher dollar value, he said.
“The first year, we bid 25 percent fewer contracts but won 10 percent more business,” Asbury said. “That’s a great story of how quickly the organization took to the switch.”
With the Six3 acquisition, CACI launched a restructuring. “It was a great property, but it also was an avenue to reset the organization, Asbury said.
Some of the work of the reset began under Asbury’s predecessor, former CEO Dan Allen, who was defining the market areas the company worked in. In July 2014, the company reorganized around 10 areas such as cybersecurity, business systems, enterprise IT, health and logistics.
“We did a lot of things that were fundamental blocking and tackling, but the secret sauce is to understand the market and not just the opportunities,” Asbury said. “How do you skate to where the puck is going to be rather than just chasing it?”
Asbury said he sees plenty of signs that the shifts the company has been going through are paying off with contract wins.
Some notable ones include the Army’s Integrated Personnel and Pay System, a $159 million contract that CACI wrestled away from IBM. The contract went through multiple bid protests until CACI finally prevailed.
“People are less afraid to take on entrenched competitors,” Asbury said.
Another example is the team running the MEGA contract at the Justice Department for litigation and case management support is identifying other customers such as the FBI, Security & Exchange Commission and Veterans Affairs that have a need for similar document management capabilities.
Planning how to manage resources is another area where current market conditions add a layer of complexity that wasn’t seen before. One of the examples are the delays in contract awards.
CACI has now added 90 more days to what it considers the normal procurement cycle. And if it is a contract with a high likelihood of a bid protest, it adds another 100 days.
In the first quarter of its current fiscal year, the company had $300 million to $400 million of contract awards under protest. “We got all of that back,” he said. But still there were delays.
In the second quarter, the number was $700 million.
“We’re confident we’ll see most of that, but it might be next quarter or so,” he said.
There are also pre-award delays, which in one case added two years to when an award finally was made, Asbury said.
The delays have caused CACI to change how it projects revenue growth.
Generally, CACI planned that if it won a $100 contract in the first quarter, for example, the company would realize about $20 in revenue by the end of the year. But now because of delays and bid protests, that $20 is down to $10.
“We don’t see anything in the environment that’s going to change that. We don’t see the government awarding contracts faster,” Asbury said. “If they did, we would beat our forecast.”
The company expects its fiscal 2015 revenue to be between $3.3 billion and $3.35 billion. But with the number of new business opportunities it is pursuing this year, the company sees fiscal 2016 revenue in the $3.3 billion to $3.5 billion range; in other words, a return to growth.
The Six3 acquisition is fueling many of the new business opportunities that CACI is pursuing. In fact, Six3 has helped CACI win four C4ISR jobs because the company helped CACI take on work with greater complexity, Asbury said.
Another major intelligence project is on the horizon. “If we win that, I’ll absolutely delight in talking to Wall Street because that’s value proposition of the Six3 acquisition, and we got a lot of criticism for that deal,” he said.
Posted by Nick Wakeman on Aug 07, 2015 at 6:41 AM