Titans of Technology: Why Booz Allen is Different
Success in Today’s Environment is About “Leading from the Center”
June 13, 2012
This speech was published in the September 2012 issue of "Vital Speeches of the Day.
Booz Allen Chairman and CEO Ralph Shrader explained that Booz Allen’s success stems from its focus on “Leading From The Center,” which is particularly important in times like today with economic and political uncertainty in the government market, during the ”Titans of Technology” speech sponsored by the Northern Virginia Technology Council. Dr. Shrader, who delivered the speech (excerpted here) on June 13, 2012, used the image of a gyroscope to stress the importance of always focusing on the stability of core principles during times of swirling change. He cited the importance of client service, focusing on the client’s core mission, the essential role of core values and the importance of Booz Allen’s unique culture in driving its continued growth and business strength today. “Looking ahead,” he said, “I’m excited about Booz Allen’s opportunities – both in our core federal government market and our growing commercial and international businesses. I believe our success lies in being essential and differentiated – and that we will achieve that success by leading from the center.”
To read the full transcript of the speech or watch the full video, view below.
Leading from the Center
I’d like to thank NVTC for considering me a titan of technology, and thank all of you for being here this morning. Two weeks ago, I began Booz Allen’s earnings call by referring back to my remarks in February about an eventful winter quarter. On May 30th, reporting on the spring quarter, I said: “The adventure continues.”
Certainly all of us in the Washington area, all of us who serve the US federal government, are navigating white-water conditions today. And we see even bigger rapids ahead – with the debt ceiling, presidential elections, and prospect of sequestration before us. These are challenging times to say the least. But, most of us here have met challenges before – and don’t shy from adventure.
This morning I’d like to share some adventure stories with you, and offer my perspective on leading through dramatic change. I trust there will be ideas relevant to your own leadership challenges – and I’d be happy to take your questions at the end. Q and A really is my favorite part, so please jot down some questions.
I’ll start with a “Cliff’s Notes version” of some major milestones of the past decade and a half. The external events you’ll recognize, of course. And, then I’ll talk about the concept and practice of “leading from the center” and how I believe that can provide both a way to navigate through dramatic change and a way to maintain the essential elements that you don’t want to change.
As Guylaine noted, I’ve been Chairman and CEO of Booz Allen since 1999. I had been with the firm for 25 years in line management roles in both our government and commercial businesses when I became CEO, and had had the opportunity to serve on Booz Allen’s Board almost continuously since the early 80s. So, I guess you could say I’m a proponent of “inside” CEOs – something I’ve thought about a lot lately, as it seems that barely a week goes by that another company in our industry names a new leader.
When I became CEO, Booz Allen was a private company with two distinct segments, and most of the partner-shareholders were in the commercial management consulting business. I had most recently led the government technology business. Both businesses were growing, and our biggest challenge at the time was the so-called “war for talent,” especially among young people who saw more excitement and earnings from riding the dot-com boom than in coming to work for a traditional professional services firm. I remember speaking to the MBA class at the University of Chicago in 2000, looking out on t-shirts that read, “Will work for equity.”
A year later, the bottom fell out. In rapid succession, the dot-com bust, Enron and Worldcom scandals, and a global recession battered our commercial consulting business. And then, September 11th. Booz Allen lost three employees who were working at the Pentagon with our Army client. I’ll never forget the memorial service we held in our auditorium– many of us struggling to speak through tears… and the immense sadness, disbelief, and fear we all felt. Coming out of that tragic loss – Booz Allen, like many of your companies, worked to help safeguard our nation, to improve homeland security against terrorist threats. As the decade went on, we responded to a growing threat of a different kind: in cyberspace.
Internally, during this time, Booz Allen grew rapidly– our revenue shot upwards and we sustained a compound annual growth rate in the high-teens for the first decade of the 21st century. I saw an opportunity to realize a dream I’d had for a long time – to bring Booz Allen’s two business sectors together to gain the synergies of the “power of both”– internally within the firm and externally in the marketplace. We called this strategy, the “One Firm Evolution.”
It turned out that “One Firm” wasn’t meant to be. Growth was faster by an order of magnitude in Booz Allen’s government technology business, and the differential growth rate compared to our commercial management consulting business, the different economic and people models, and a cultural divide between the sectors came to a tipping point.
The inability to bridge this cultural divide was the biggest surprise and lesson learned for me – it’s the ultimate reason the One Firm strategy didn’t work. I was convinced that the partners would clearly see the competitive and financial advantages of bringing all of our service offerings to all of our clients. But our commercial leaders didn’t want the firm to be larger and more successful, if it meant diluting their vision of being boardroom strategists.
The answer was to get back to our center, and at that point in our history – we had two centers. The forces pulling the sectors apart were stronger than the historical ties holding us together.
It became clear that our best path forward was a “de-merger.” And, in 2008, 99.76 % of shares were cast in favor of separation. Because the market value of our firm was concentrated in the much-larger government business, while two-thirds of the ownership was concentrated in the commercial business, the government partners could not afford or borrow enough to buy out the commercial partners on their own. We needed a financial partner – and we found an exceptional one in The Carlyle Group, which remains our majority shareholder today.
In November 2010, we filed for our initial public offering. I’m happy to say with much less fanfare, and much more smoothly, than Facebook. Today, Booz Allen is a Fortune 500 NYSE-listed company. We were named in February of this year to Fortune’s list of “The World’s Most Admired Companies,” and our May 30, 2012 earnings call was our sixth straight quarter of top and bottom line growth since our IPO.
Nonetheless, like many of your companies, we are today facing the most challenging market conditions since I took office as CEO thirteen years ago. This past January, as you may have read in the press, the Booz Allen Leadership Team made the difficult – and important – decision to reduce our senior and middle management ranks and take significant cost out of our overhead. In the month of January, we cut our headcount by approximately 2 percent overall, which included deeper cuts on the order of 10 percent, in our senior and middle management ranks and in our internal operations. These changes were not easy, and I assure you, they were not undertaken lightly. The hardest thing any of us has to do in our jobs is to tell a long-serving partner or hard-working staff member there is no longer a position in the firm for them.
The cost reductions have given us greater flexibility -- and very importantly – they have freed up investment money for us to put into areas we believe have strong potential for future growth. These growth areas include: our health market area and our new commercial and international businesses that we launched last summer, after the end of the three- year non-compete agreement with our spin-off company.
We’re also investing in cross-cutting functional capabilities where we see growth opportunities – specifically in cyber, cloud-based services, engineering services, and enterprise effectiveness and efficiency.
As I look back on the boom times and hard times – and think about what works – the key has been holding and leading from the center.
So… what do I mean by “leading from the center”? I’m an engineer by training, and envision a gyroscope as my mental image of leading from the center. As external conditions spin and swing, the center of the gyroscope -- the “rotor” as it’s called -- remains balanced and in control. The opposite image to me, is that of a windsock. I believe it’s essential in times of dramatic change – in stormy conditions, if you will – to stay centered, not to shift to-and-fro with the wind.
As with the war on talent during the dotcom era, boom times have challenges too. Whether racing to keep up with 20% growth, or grinding out the 4.8% growth we reported this past fiscal year – it’s important to hold to the center of what is essential and differentiated – while being agile to seize the opportunities and meet the challenges of the future.
For Booz Allen, the center of our gyroscope is a circle with four quadrants: Client Service, Core Mission, Core Values, and Culture.
First, let me talk about client service. Booz Allen serves clients, we don’t sell to customers. That may sound like a semantic distinction, but it goes to the very core of what we are. We don’t use the term ‘customer’– you won’t hear it from a Booz Allen person or find it on our website. In addition to the way our management consulting heritage has taught us view to our clients, it also has taught us to ask probing questions.
It’s a fundamentally different way to approach a client problem. Before we start on an assignment, we ponder this: is the client asking the right questions? If we think “perhaps not,” we raise the possibility of a different viewpoint with the client. And, once agreed on the way forward, Booz Allen people are passionate about client success.
Second, Core Mission. There are essential missions that government agencies and commercial companies need to do – their reason for being. For NSA the core mission is code-making and code-breaking… For NIH, the core mission is healthcare… for the FBI – law enforcement… and for financial services companies – it’s the protection of assets and transactions. This is important work, and in these lean times, we believe clients will prioritize to spend their funds on their core mission rather than peripheral support roles. And, we believe clients will pay for quality – not look for the lowest-cost provider – when it comes to work that supports their core mission.
Next, Core Values. Booz Allen’s core values form the basis of everything we do. The origins of Booz Allen’s commitment to ethics trace back to the 1930s, when one of our founders, Carl Hamilton wrote the firm’s first formal code of ethics. By codifying our commitment to integrity and values, he set the course for the firm’s focus on ethics, integrity, and professionalism. Booz Allen Hamilton was one of the first organizations in the United States to adopt a formal statement of its business ethics, which translates into the ten 10 Core Values we live by today: (client service, excellence, teamwork, fairness, respect, diversity, entrepreneurship, professionalism, integrity, and trust).
And, the final quadrant is culture. Our collaborative culture is defined by teamwork and reinforced by a common bonus structure, and it extends to a strong spirit of service to clients and community. Culture is more important than ever – and maintaining and evolving our culture is harder today. We’re a big company – 25,000 people, and many of our staff members work at the client’s site.
Over the past few years, we’ve dispersed our employees, reducing the size of our once mega-headquarters campus in Tysons Corner, VA while opening and enlarging other offices closer to where our employees live and work. The reduced commute is good for our people and good for the planet – but having employees further apart, hoteling staff to better utilize our facilities, and supporting the growing interest in telework – makes it harder to connect and inculturate, especially new people.
In hindsight, we initially focused too much on the facilities and technology requirements for hoteling, and not enough on the people and cultural dimensions at our center. Booz Allen has a very collaborative, team-oriented way of working, and our most effective means of developing people is through an apprentice model. So, we have to pay a lot more attention to helping managers and staff connect, collaborate, learn, and grow in a distributed environment. We’re working hard on that.
Recognizing that it is inherently more stressful to work in times of lean budgets and slower growth – we are redoubling efforts to connect with our people at all levels. This year, every senior manager and leader – what we refer to as our “top 2000” has an explicit people commitment to enhance connection and understanding of our culture. On Monday of this week, as part of my people commitment, I hosted a town hall that had both a live audience and was webcast to thousands of employees.
Leading from the center around client service, core mission, core values, and culture has served Booz Allen well for 98 years. In the past 13 years that I’ve led the firm, we’ve seen markets boom and bust, we’ve changed our ownership structure, and spun off a historical part of our business – but our central precepts as an institution have not changed.
The present market environment is challenging for us, as I know it is for many of you. Budgets are lean – and unpredictable. Large companies in general, and government contractors in particular, are often cast as the bad guy.
The procurement process has changed, and in many ways not for the better. Technical clients whose missions we support are less and less in the driver’s seat when it comes to decisions about contracting. And the current emphasis on “Low Price Technically Acceptable” awards, I believe does not provide government clients with the best solution or best value. When inappropriately applied to challenging mission-critical problems, this method of contracting inevitably leads to minimally-acceptable solutions with significant mission risk, and reduced innovation.
We need to find a better balance because it is innovation and creative solutions that will lead to improvements in quality and true long-term costs savings for our clients. Cost is an issue for everyone, and Booz Allen is committed to always deliver value to clients in excess of our fees. I’m convinced there are ways to make smart cuts, and there are opportunities for us to help our clients make smart cuts that still preserve their important missions.
Today’s market challenges are significant, but they are not insurmountable – not to Booz Allen, and not to your companies. We need to look for shared solutions, not opposition and blame.
The political rhetoric in Washington and the culture of frustration among vocal elements of our citizens obscure this fundamental reality: Government, industry, and employees are on the same team, facing the same challenges. We are working toward the same goals on missions that matter – missions that matter to our nation’s security, health and safety, and economic prosperity.
Collaboration on the part of our industry is essential. Booz Allen has teamed with many of you – large businesses and small businesses – and we continually seek opportunities to work together. When we compete, we want to compete in a way that reflects well on our individual companies and our industry as a whole. When we deliver quality and value, it serves our clients well and serves our contractor community well.
Organizations like NVTC play an important role. I’m especially proud of the pro-bono work that Booz Allen co-led with a consortium of 17 NVTC members to identify process and technology improvements for Arlington National Cemetery.
Looking ahead, I’m excited about Booz Allen’s opportunities – both in our core federal government market and our growing commercial and international businesses. I believe our success lies in being essential and differentiated – and that we will achieve that success by leading from the center, focusing on client service, core mission, core values, and culture.
We know it won’t be easy. Our CFO Sam Strickland said on our earnings call two weeks ago, “There’s probably not a company or country in the world today that wouldn’t wish for a bit less excitement.”
In that regard, I’d like to close with a quote from one of my favorite books, Tolkien’s The Fellowship of the Ring. Having faced too much adventure already, and worried about what peril the future holds, the Hobbit Frodo says to the wizard Gandalf: “I wish it need not have happened in my time.”
"So do I," said Gandalf, "and so do all who live to see such times. But that is not for them to decide. All we have to decide is what to do with the time that is given us.”
The Hobbits didn’t have a gyroscope with them on Middle Earth, but Gandalf’s wise advice gave Frodo the perspective to navigate the challenges ahead and stay the true course.
Colleagues, these are turbulent times. These are the times that are given to us, and there’s no question that it’s our time to lead – to lead from the center.