Last month, Ken Dahlberg retired as chief executive of SAIC after six years leading the engineering and systems integration company through some very big changes. With Dahlberg as CEO, defense rather than the commercial sector became the major driver for revenues (76 percent of SAIC's revenues last year were defense-related). SAIC also became a publicly traded company and underwent a 73 percent increase in its revenue.
With Dahlberg's retirement as CEO (he'll continue as chairman through June 2010), SAIC also moved its headquarters from San Diego to McLean, Va., to be closer to its defense and government customers in Washington. When he leaves the company next year, Dahlberg will be ending a 32-year career in the defense industry.
A. It means we're restructuring the program along the lines of what Secretary [Robert] Gates and the administration desire, the termination of the manned ground vehicles to develop longer-term a combat vehicle strategy. I think the Army's looking at that.
Now I think the real interest is continuing to evolve the network, which is really the heart, the pulse of what was called Future Combat Systems - and then being forthright in spinning out some of these capabilities earlier to the force is, I think, a very smart move, one that keeps this program, whatever it's called in its restructured form, relevant.
It's a revenue hit for all of the Future Combat Systems teammates. But our thrust has always been as involved in system development, not in the production end of the cycle, long term, so the fact that we're still dialoguing about the network development and the spin-outs, there's still a significant amount of business for both ourselves and Boeing.
A. In the late '60s, there was a real downturn in the budget cycle. Innovation really needed to play a major role, and fortunately I was part of the Hughes Aircraft company back then. That was our real focus - technology, research and development. So I enjoyed a pretty fabulous career doing a lot of design development before I moved to program management. And during that cycle, the procurement activity was lean, very few programs. But if you won one, it really established a multi-year cycle of development and into low rate initial production and then production.
In the '70s, the budget started picking up, and of course, we've gone through several of the wars and different administrations. The Reagan buildup in missile defense was pretty wholesome for the defense industry, certainly the companies that I served. With this administration - still struggling with what to do in Iraq and Afghanistan, and the threat of cyber [attacks] now being ubiquitous - it's challenging for our industry. I do sense procurement will slow down. Hopefully, the administration continues to focus on research and development so that the country can stay really focused on innovation to be the best in the world.
We're seeing a change in the industry. Large, long-term development programs are probably on the wane. And I think we're starting to see now what they call 75, 80 percent solutions, using a lot of what exists as opposed to being developed over multi-year periods.
A. It always has been that when you have a well-defined set of requirements, then companies can write and develop approaches that not only have merit but are much lower risk, and can provide a system and a product that both the government and the companies are proud of. That's easier said than done.
It's hard because technology is moving rapidly. In the course of my career, the programs that I can relate to that have done superbly well are always because the customer's set of requirements were well understood and you could develop very solid approaches to that and deliver products, systems, services that met those objectives.
That's really key, and I know Ash Carter [U.S. defense undersecretary for acquisition] and the whole acquisition team are working to that end. So, well-defined requirements.
Also, probably not counting on technology that's yet to be developed. It's a risk - that's why you have programs led by DARPA; that's why you have research and development projects to continue to evolve those kinds of capabilities, but you don't want to put that into a high-volume production type of program.
A. I don't know about deconsolidation, but I think it's been made pretty clear to a lot of the larger aerospace and defense companies that their ability to add a lot of bulk by consolidation with some of their peers is highly unlikely. I just don't think the administration would allow that.
Having said that, there's been a lot of second- and third-tier activity occurring across our industry.
We continue to have a pipeline of acquisitions that we look at seriously. We really believe that organic growth is the ultimate way to build your company, but in certain cases - where you're trying to fill a need, a strategic gap in your technology, customers or a combination - then acquisitions make sense. We just made one, of [engineering and energy consulting services company] R.W. Beck, that really helps us build our whole value proposition in energy.
A. Let's step back in the six years that I've been here. Initially, we started focusing on the intelligence, logistics, national security, homeland defense areas and have built sizable businesses around those strategic thrusts. Those are areas that will have long-term sustainable growth even though the overall budget will be flat to modestly declining.
We were placing more emphasis and renewed focus on cyber and energy and in health, so those are the next major strategic thrusts that the company has been undertaking. I'm happy to say that we're starting to generate some significant revenue in all three of those areas.
A. Focusing on those submarkets where we believe that we have some discriminators - technical [expertise], understanding the customer's mission and investing. We've invested a lot of our discretionary spending around those markets and technologies, as well as we really had a renewed interest in taking on larger opportunities.
This is a company that historically has lots of contracts, most of them small. And we try to bring a passion about trying to do more collaboration across the company, to gather all the right constituencies to pursue larger development system engineering projects. Over the last several years, that's really started to pay off.
Our win rates continue to be pretty high, and I'm happy to see that the company is recognizing the merits of collaboration. That's really what's going to take this company to the next level, is when we do much, much more internal teaming and internal collaboration.
A. Before, we traded internal stock four times a year. We were registered on the NASDAQ with our trading company, so we were filing quarterly and yearly returns to the Securities and Exchange Commission for a long, long time. So we were on the dark side already by being employee-owned but having to meet those regulatory obligations. And I think the employees, along with the board, felt that the timing was right for us to take the company public, so we did so in October 2006.
A. No. I think it was the right call at the right time, and the company is well-positioned for sustainable growth, and over time that should improve and increase shareholder value.
A. I would say that was the rationale. The main reason for us going public was proper deployment of our capital, our cash. We were using most of it to bring equilibrium into our internal stock system, so we couldn't use it to drive organic growth, to acquire key companies, key technologies. It was also part of the strategy - if you're going to continue to grow, you've got to find ways to unlock value. We did that through the IPO.
A. It's a growing concern. I'm pleased that the prior administration and the current administration really put emphasis, funding behind resolving these kinds of cybersecurity issues. And the spectrum - military, intelligence, civil and eventually commercial - it's an enormous problem that I think requires the kind of expertise and innovation that you get from our defense industry writ large. Co-opting our industry with the key agencies that are tasked to work on this threat is important to the country and to the world, frankly.
I think the whole information dominance, information sharing, the connectivity that we have, just begs these kinds of concerns that need to be addressed. It's probably one of the most important issues that our country and the companies involved need to tackle. ■
- By Antonie Boessenkool in Washington.
■ Headquarters: McLean, Va.
■ Employees: 45,000
■ Revenue: $10.07 billion for year ended Jan. 31
■ Business: Scientific, engineering and technical services; logistics; research and development and systems integration for the defense, government and intelligence markets; state and local governments and select commercial markets
- Source: Defense News research
The Army's Future Combat Systems (FCS) program is ready to test a few components that soldiers may have in their hands by 2010.
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