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FCW : June 30, 2015
June 30, 2015 FCW.COM 29 will divide into two companies: one focused on the commercial market and the other on the public sector. The company has struggled for sev- eral years and has been a turnaround project for CEO Mike Lawrie since he came on board in 2012. Since then, the company has shed business units, restructured to flatten its organization and seen turnover among its senior leaders. The split, which is expected to be completed by the end of October, might not be the final move that either half of the business will need to make. But the benefit for the commercial and public-sector portions of CSC is that each will be able focus time, finan- cial resources and attention on their respective marketplaces. One will no longer be distracted by the other. This will likely benefit CSC’s public- sector business the most because its financial performance was the quick- est to rebound since 2012 and for the most part has held steady. Another major split, meanwhile, is underway at Hewlett-Packard Co. (No. 6), which is separating its PC, laptop and printer business from its services, software and higher-end hardware business. The move is similar to what IBM Corp. (No. 20) did in 2004. HP’s split is expected to be completed by Nov. 1, but the impact on its public- sector business is not clear yet. Both new companies will have substantial government business. Another dramatic move is the $4.6 billion acquisition of Exelis by Harris Corp. (No. 9), which closed May 29. Exelis spun off its mission systems business in September 2014 to create Vectrus Inc., which landed at No. 45 on the Top 100. Vectrus took Exelis’ IT, infrastructure, logistics and supply chain business, while Exelis retained higher-end work focused on critical networks; intelligence, surveillance and reconnaissance; analytics; and elec- tronic warfare. The idea was to separate the lower-margin work in Vectrus from the higher-margin work held by Exelis. Each company needed different cost structures to remain competitive, and they would be better off as separate companies. But the repositioning wasn’t over. Harris swooped in with a February announcement that it was acquiring Exelis for $4.6 billion. Harris wanted to add size and scale to its capabilities in ISR, command and control, electronics and other complementary capabili- ties that Exelis had. The motivation for Harris was to add size, which execu- tives said will make the company more cost-effective and therefore more competitive in the defense and intel- ligence markets, where Harris expects to grow in the coming years. That acquisition moved Harris up three spots in the rankings to No. 9. MORE SUBTLE CHANGES Meanwhile, Raytheon Co. (No. 4) undertook a unique cybersecurity strategy when it acquired a major stake in Websense for $1.6 billion. It then combined its cyber products business with Websense to create a joint venture focused on the commer- cial market. The deal allows Raytheon to target the commercial cyber market while still applying those technologies to its defense customers. That approach differs from other defense companies, which are also targeting the commercial cyber market but are focused more on adjacent sec- tors such as energy, utilities and other critical infrastructures. The size of Raytheon’s investment and the structure of the business are unique. Not all moves to reposition have been so dramatic, though; most are much more subtle. Take Lockheed Martin, No. 1 for 21 consecutive years, which made niche acquisitions in cybersecurity and health care. Other companies are making stra- tegic hires to increase their intimacy with customers. Several executives described the need to listen to their customers to understand their chal- lenges and needs. Companies are also actively teach- ing their customers the art of the pos- sible — not just about new technolo- gies, but about new models of doing business such as cloud computing and everything as a service. They are seeing adoption of those models increase, but there is still a wide gap between early adopters and agencies that are risk averse. Narrowing that gap is where many government contractors see near-term growth opportunities, so that’s where they have targeted their investment strategies. As government buyers remain focused on cost, effectiveness and efficiency, industry leaders believe agencies will turn to new ways of buy- ing goods and services. And that is when the Top 100 com- panies’ investments, big and small, should pay off, regardless of when overall spending begins to rise. • Many executives see that focus on cost, efficiency and effectiveness as a long-term shift in how government buyers view their relationship with contractors. 0630fcw_028-031.indd 29 6/10/15 9:06 AM
June 15, 2015
July 15, 2015