After 15 years of reshaping, Shrader repositions Booz Allen once more


Ralph W. Shrader, chairman and chief executive of Booz Allen Hamilton. (Jeffrey MacMillan/Capital Business)
March 14

Ralph W. Shrader had a Ph.D. in engineering and experience as a Navy contractor when he showed up for a job interview at Booz Allen Hamilton in 1974.

He knew relatively little about the company. In those days, the consultancy catered mostly to commercial businesses, not government agencies, and his specialty was communications, not business advice.

But that would change.

Shrader not only took the job, he ended up staying, his arrival coinciding with the company’s lengthy march to transforming itself from business advisor to government services powerhouse.

In that time, he has become the public face of the company, a chief executive who helped Booz Allen navigate the economic ups and downs by changing its corporate skin to suit the circumstances of the day. Shrader oversaw the company’s decision in 2008 to split itself in two, into commercial and government enterprises. In 2010, he was at the helm when the company went public — again.

Now, 40 years after he arrived, Shrader and Booz Allen are starting to pivot again, as contractors race to adapt to shrinking government spending. The company has had to shed jobs and begin to think about who might lead next.

“I think we have to continue to evolve ourselves,” Shrader said during a wide-ranging interview at Booz Allen’s Tysons Corner headquarters late last month. “We’re going to have to be mindful of the fact that, over the next couple of years at least, there are a lot of pitfalls ... that are still out there that are going to have be navigated. And firms like ours are going to have to be careful.”

Shrader’s tenure

Shrader’s arrival at the company was hardly intentional. He found work in the Washington area first at Western Union, working on a satellite communication program for the money transfer giant. But relatively quickly, he realized the telecommunications business was changing, and Western Union’s prospects seemed uncertain.

So Shrader decided to seek out a new job. At Booz Allen, he interviewed with the future chief executive and chairman of the company, who was then a principal. Shrader joined a government services unit that was then only a small piece of Booz Allen’s work. Indeed, at the time, 10 members of the company’s 11-person executive committee were part of the commercial business, Shrader said.

The government business in those days, he said, drew employees who were more focused on technology. “The commercial guys had to be much more interactive with clients,” Shrader recalled. “That’s what I wanted to do.”

His instincts were good. Shrader quickly hit it off with his Navy customer, building deep relationships, an important consideration at a place like Booz Allen.

Although formally a corporation, Booz Allen’s leadership team likes to think of itself as a partnership, where top executives jointly have a say on strategy and more. It can be a demanding environment, where leaders must move up (by, for instance, bringing in more business) — or out.

Shrader proved adept, and well positioned for success in that environment. He became a partner after just four years; at the same time, the company’s government work began to swell. By the mid-1990s, the government business had reached rough parity with the commercial one, he said.

In 1999, Shrader was named chairman and chief executive, and after Sept. 11, 2001, the government business began to surge just as the dot-com bust took a toll on Booz Allen’s commercial business.

“We had sort of a decelerator going on on the commercial side and an accelerator going on on the government side,” Shrader said. “It was not an intentional growth posture that we adopted, but just the realities of the marketplace.”

That growing disparity eventually led to one of the biggest changes for Booz Allen: splitting its commercial and government businesses in two.

In 2008, the company separated the two groups, and sold a majority stake in the government business to the Carlyle Group. Today, Booz Allen Hamilton is the government unit; the commercial firm is known as Booz & Co.

The split came after Shrader failed in an effort to unite the two businesses, describing the bid in a 2012 speech as not “meant to be.” He said last month that the partners in the commercial practice, who saw their business shrinking, increasingly felt like they were part of a government services business that operated in a highly regulated federal arena.

“There was a zest for separation,” he said.

After splitting the businesses, Shrader presided over another major change in 2010 when Booz Allen went public (Carlyle still owns a sizeable stake).

Being accountable to public shareholders meant Booz Allen had to be more transparent in its dealing just as the company started to feel the pressure of declining government spending. In 2012, the company announced it had reduced its ranks of senior and middle management and internal operations workforce by 10 percent. The cuts were part of an effort “to get out in front,” Shrader said at the time.

Adding to the load, Booz Allen found itself and its employees under the microscope last summer, when Edward Snowden, a Booz Allen contractor at the time, released secret government documents. The news ignited public and congressional debate about the role of contractors.

“We’ve come to find out we were virtually targeted, we were just a vehicle on his journey. It’s kind of like we gave him the bicycle,” Shrader said. “We can’t lie — it was our bicycle. But we would prefer he rode someone else’s bike.”

Still, he said the company’s clients understand this, and that Booz Allen’s business has not suffered.

Consistency

What Shrader has provided during this turbulent time, analysts and colleagues say, is a consistency of leadership that is rare at many of the largest government contractors. Indeed, in recent years, most of Booz Allen’s competitors have turned over the reins to new chief executives, often accompanied by other organizational changes and shifts in strategy.

At Booz Allen, the organization has remained relatively intact: The consulting company views itself as a single unit. Compensation is based first on the performance of the company, then on the individual, according to Shrader.

Operating as a single entity instead of a series of divisions “has actually been a key competitive advantage for Booz Allen,” said William Loomis of financial services firm Stifel Nicolaus. “The consistency that management has had in terms of investing in people, nurturing people, investing in the business, treating it as one big unit. ... That’s allowed them to be ahead of the curve.”

It isn’t always easy. Partners who don’t measure up can be asked to leave.

“I depend on people to run their businesses well, and if they don’t run it well, I’ll find someone who can, but I’m not going to run it for them,” Shrader said.

Those who do well tend to stay loyal. Shrader said no Booz Allen partner has departed voluntarily for a competitor during his 15 years at the helm.

Horacio D. Rozanski, Booz Allen’s chief operating officer and president, described the partnership culture as one of collaboration.

“Some people play individual sports, some play team sports,” he said. “I think Booz Allen became a team sport.”

The company can sometimes carry that culture to an extreme, he said; what might be a simple, quick decision at another company will require a 15-person vote at Booz Allen. And the leadership team that size can sometimes feel clubby to those trying to break in, a place where people feel pressure to conform, others have said.

Rozanski argued that Booz Allen’s approach makes the contractor better able to shift gears. When the company re-energized its civil work several years ago, he said partners were ready and willing to jump in, viewing it as a company effort rather than a personal sacrifice.

Still, the culture has also come under pressure as the company has adapted to tougher times.

In 2012, Shrader acknowledged that the company’s shift to “hoteling” — in which lower-level employees reserve desks but don’t have a single permanent office — was more complicated than it seemed.

Many employees liked their shortened commutes, but he said the company didn’t spend enough time on the “people and cultural dimensions.” At the time, he said Booz Allen would redouble its efforts to connect with employees, including holding town halls.

The employee cuts, too, have taken a toll, Rozanski said. Booz Allen has tried to provide what he described as a “cohesive narrative” to explain to employees the contractor’s direction. “There’s no such thing as overcommunicating,” he said.

Looking forward

Booz Allen executives said they’re now investing in forward-looking technology and resetting priorities to make sure their employees are working on the most critical government projects. Rozanski said the cost-cutting the company undertook has freed up funding for other areas.

It wasn’t “a question of everybody [cutting their budgets by] 10 percent, it’s a question of what are our priorities,” he said.

Loomis said that the pressure is on Booz Allen to prove that its cost cuts will put the company in a better position. With a federal budget deal in place, he said, the contractor will need to show it has not lost its competitive edge and can still win contracts.

“There’s kind of no excuses in the second half of the year,” Loomis said.

Shrader said Booz Allen has a history of looking ahead. He recalled that one partner came into the office the day after President Ronald Reagan’s 1983 speech on the Strategic Defense Initiative — dubbed “Star Wars” by some — and got to work on it.

“There was no business,” Shrader recalled. “But [the partner] said there’s substance to the dream, something is going to happen here and we need to be preparing now.”

Booz Allen has invested $40 million in a new strategic innovation group, a 1,800-employee unit tasked with applying the company’s technologies and services to new areas.

The company is also making strategic acquisitions, after years of staying on the sidelines. In fall 2012, Booz Allen announced its first acquisition in almost a decade. The company said it would pay $154 million for the defense systems engineering and support division of Annapolis-based Arinc.

That same year, Booz Allen announced it had picked up Research Triangle Park-based SDI Corp., a small engineering company that specializes in rapid product development.

Shrader wouldn’t speculate on how industry consolidation might play out, but said that Booz Allen is weighing acquisitions.

“As far as what the rest of the industry will do, I think we have to leave it to the rest of the industry,” he said. “I don’t think we’re too worried about getting left behind.”

Even as Booz Allen pivots, Rozanski said the contractor is seeking to preserve its distinct culture. During the government shutdown, he said the company took pride in not furloughing a single employee.

“That wasn’t for free, but if you believe that your culture is essential and your talent is essential, then you invest,” he said.

As for Shrader, he said he has no immediate plans to depart. Rozanski said some executives like to joke that Shrader has been so influential at the company, his name should be part of the brand instead of Hamilton. “Nobody knows what this guy Hamilton did for us,” he quipped.

Still, Shrader is planning for a time when he won’t be at Booz Allen. Late last year, the company promoted Rozanski to president, sending a stronger signal, Shrader said, that he is Booz Allen’s number two.

“It’s important that any person in my position makes sure that the next team is ready,” he said. “I’m at an age and a place in my life now that there’s going to be a finite end at some point.”

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