Should This Marriage Be Saved?

By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, February 4, 2008

Not long ago, Booz Allen Hamilton pioneered the concept of Organizational DNA, a way to assess a company's or government agency's personality. In Booz Allen's case, that genetic code has two distinct strands, and the split personality is at the heart of talks to divide the company in two.

The commercial unit, based in New York, competes with rivals McKinsey and Boston Consulting Group in helping companies set strategy. It recruits from Harvard Business School, Wharton and other top schools and assembles agile groups of seven to 10 consultants to work with clients. Career advancement is based on a philosophy known as "up or on" -- get promoted within a few years or be "counseled" out.

The government unit, based in McLean, is a different animal. It recruits a broader range of people: recent college graduates, veterans, engineers and many others. Employees can remain at the same step on the corporate ladder for decades. Some teams working on government contracts can include 100 or more people.

In recent years, the two units have seen their differences grow as the post-Sept. 11 boom in federal spending lifted the company's government business while the commercial side failed to keep pace.

"We've tried a number of different organizational approaches during our history," said Marie Lerch, senior director of marketing and communications and a 30-year firm veteran. "There are great things that have held us together and there are different things. As the government side has seen its share of growth, it's made the tension more significant to the point where management is now looking at whether it makes the most sense to strategically separate."

A decision about whether to pursue a separation could come as early as this month. The company has been in talks with the Carlyle Group, a District private-equity firm, about buying out the government unit, and other suitors are possible.

One source of tension inside the company is that while the two units operate separately, both sides share in the proceeds, sometimes disproportionately.

As a private company, Booz Allen is owned by about 300 senior executives. Most are concentrated in the commercial unit. So when profits were divvied up among the owners at the end of the year, many executives in the government division felt an inordinate share was going to executives in the commercial division.

Splitting up would be one of the most significant events since Edwin G. Booz founded the firm in 1914. It would be on a scale of the 1976 decision by senior partners to buy back the company, which had gone public six years earlier.

As a private company, Booz Allen is exempt from many requirements to publicly report financial results or internal company deliberations. It is nonetheless one of the government's largest contractors and a force in the region, with 11,000 local employees. It also sponsors high-profile events and spent $1 million to support the recent Edward Hopper exhibit at the National Gallery of Art.

As a measure of the company's size, when Booz Allen rented the Udvar-Hazy Center at the Smithsonian National Air Space Museum to host its holiday party in December, employees weren't allowed to bring guests because of concern they might exceed the building's capacity.

Booz has pioneered some of the top ideas in consulting, including the concept known as supply chain, now used throughout companies and the government to manage the flow of goods and people. Its literature is littered with consultant terms such as "strategy-based transformation," "smart customization," and "enterprise resilience." Clients have included the D.C. Police Department, the National Security Agency and Fortune 500 companies.

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