Post 200: The Post's Annual Top Companies Survey
Wednesday, May 13, 2009; 11:00 AM
Washington Post's Terri Rupar, who oversaw this year's Post 200, will be online with Stan Soloway, the president and CEO of the Professional Services Council, at 11 a.m. ET on Wednesday, May 13 to discuss the special section and Washington's economy.
This year's Post 200 report focuses on the federal government and Washington area businesses.
Terri Rupar: Welcome! We hope you've had a chance to look at this year's Post 200, our list of the biggest businesses in the Washington area. This year, the focus was on the downturn and the role the federal government plays with Washington businesses. I'm here with Stan Soloway, head of the Professional Services Council, who knows a lot about what's going on with companies here right now.
Washington, D.C.: How come Fannie and Freddie make the list? Aren't they taken over by the government?
Terri Rupar: The Fannie/Freddie question was a little difficult for us, but what it came down to was that they're still publicly traded companies, and they're big parts of Washington business.
Falls Church, Va.: So which ones are hiring? My husband has been unemployed since November. I am hoping this list helps pan something out.
Terri Rupar: It's definitely tougher out there than a few years ago, with unemployment up around 6 percent in the Washington area. And a lot of local companies have turned to layoffs to cut costs. A number of companies I talked to are still hiring, but in a very targeted way - people with specific tech skills that will help them win government work, for example.
Terri Rupar: Sorry for the delay ... having a tech issue with Stan. But he'll be back soon!
Logan Circle, Washington D.C.: Which local businesses weathered the recession best last year? Which did the worst?
Terri Rupar: I think there are many ways you can define weathering the recession, and to a certain extent it'll be hard to tell exactly who made it through okay until we're on the other side. Some companies have had to lay people off but have kept up revenue/profit growth, others have seen their stock prices take a big hit. Most experts do express more confidence in companies that rely on government spending, though even defense contractors are facing some worries about programs getting cut.
P-Street, Washington D.C.: For Stan: Obama's stimulus obviously pumps out a lot of money in government spending, but on the other hand Obama has expressed skepticism about "contracting out" many services. How do those two things balance each other out?
Stan Soloway: This is a core issue but the two can co-exist. Even as the President seeks to improve contracting there is no question--in the administration or outside it--that there will be substantial contracting associated with the stimulus. The real key is balancing the business rules so that we achieve transparency and accountability but don;t over burden the system or inhibit innovation.
Bethesda, Md.: Isn't the administration cutting back on defense programs? Won't that hurt contractors here?
Stan Soloway: Actually, the defense budget is relatively stable for the next couple of years. What we are seeing is a re-directing of resources to different kinds of needs and systems. There will also be some re-balancing of the workforce to ensure the government is able to begin rebuilding key skills it has atrophied. Right now, that effort appears to be strategic in nature and thus, while it may impact some companies that are heavily leveraged in certain areas, overall, the market will remain fairly stable.
Fairfax, Va.: What do you think the Washington landscape will look like in two years? What role will government contractors play then?
Stan Soloway: Over the next two years, I expect to see the market to continue its steady, if moderated growth. The Adminstration's agenda is such that it will have to partner closely with the private sector to achieve the desired outcomes. After all, the agenda is heavily tied to technology enhancement across the board and the bulk of the capability to do that kind of work resides in the private sector. We will see a lot of continued attention to contracting policy, and some continued in-sourcing pressures, but by and large, given the government's clear demographic and skills gap challenges, and its difficulty competing broadly for talent in a global marketplace, I think contractors will continue to play and important, growing, and valuable role.
Washington, D.C.: What happens to Washington businesses that will benefit from the stimulus money after the government stops spending it? Should we be worried about that?
Terri Rupar: There are a lot of differing opinions about this. One line of thinking is that the government never really decreases spending, it just changes what it spends money on, so companies will be fine - they'll just adapt. The other line of thinking says that this spending pace is unsustainable and eventually the government will have to make cuts - particularly since President Obama has already said he wants to bring more work inside the government instead of sending it to contractors. So some local economy watchers are concerned that in a couple of years, we'll feel some pain from that.
Stan Soloway: It is a bit of a mixed bag, I agree..but as Terri says, the government continues to face enormous--and growing--mission needs As such, even as discussions about what core skills the government needs to insource in order to be a responsible steward continues, the needs will also continue to grow. There are those, of course, who have taken this as a purely political question--insource for the sake of insourcing without regard to other critical factors. Hopefully, that more parochial perspective will not prevail.
Adams Morgan, D.C.: Thanks for doing this chat. What's the status of Washington's Webby community? For a while it seemed like everybody was getting on the Web 2.0 bandwagon, but now it seems that local businesses aren't as interested in making money with social networking web sites and the like.
Terri Rupar: I think there's still plenty going on in the Web 2.0 community, as you may have read in some of Kim Hart's Download columns. The biggest tech business here, though, is still based on the government. Lots of companies make a fair amount of money by selling technology and related services to government agencies, designed to help them process information and function more smoothly.
Stan Soloway: One of the real challenges in the current environment is balancing the pressure for more transparency and accountability---which is entirely appropriate--with encouraging agencies and federal employees to be innovative and press. This is really the guts of the President's March contracting memo in which he directed the agencies, under OMB's lead, to review current processes and practices to improve outcomes. It is important to note that he has always talked about reducing contracting through "more efficient and effective contracting", not through arbitrary contractor cuts or insourcing.
Isn't the administration cutting back on defense programs?: Jon Stewart reports that the DOD budget is increasing by 4 percent. Don't believe the GOP scare tactics. Yes, certain, aged projects are being dropped/cut (recommended by GOPer Sec Def Gates BTW) but the overall budget isbeing increased.
Stan Soloway: The DoD faces a wide range of costs and needs that are, to some degree, immutable. Iraq/Afghanistan will continue to require enormous resources for the coming years. On top of that you have the current base realignment and closure process which is both expensive and time sensitive--let alone important. Then there is the DoD healthcare bill--estimated at close to $47 billion this year. And of course, on top of it all, is the cost for completing the major systems in development. Secretary Gates has made some significant changes to that last category, but has also said, as recently as a few weeks ago in a speech at the Army War College, that most of the funds he cut from the Army's Future Combat System will be redirected to other, somewhat different programs to address challenges similar to what FCS was designed for. So, yes, the DoD budget is growing modestly...what will happen in the longer run is a real question.
Stan Soloway: One additional cost-related issue that is often misunderstood involves whether the government will really "save" money by insourcing work. For one thing, most agency activity budgets do not account for the total cost of their operations--overhead costs come from a different budget line or series of lines. As such, their cost comparisons are often incomplete and the perceived savings illusory. When you add real overhead factors, including the cost of government personnel systems and offices, pay offices and systems, lifetime health care and the like, the picture can be quite different.
Columbia, Md.: I thought we had gotten over this idea that Washington is a company town! The economy has changed so much in the past couple of decades. It's not all government wonks anymore. Doesn't looking it as an all-government town do the rest of our economy a disservice?
Stan Soloway: Interesting comment...but in truth, the DC economy, and the region's, is heavily dependent on the government. In Maryland and Virginia, you have tens of thousands of government employees AND tens of thousands of contractor employees. And the tech belt that has been so important to the region in recent years has been closely, though not entirely, connected to the government as well. So, it is a company "town"...or "region"...which is heavily dependent on the government.
Washington, D.C.: Have you seen a change in companies on the list because of the economy?
Terri Rupar: The economy didn't change the list as much as we had expected it might, actually.
As we do ever year, we made some tweaks to try to better reflect the area's economy. For example, we added in foreign companies with U.S. headquarters in Washington and credit unions. Our banks list this year was not made by where companies are based, but rather the percentage of deposits they have in the Washington area, according to the FDIC. (It'll be interesting to see how that has changed, with all the turmoil in that industry.)
But on the public list, the same companies were in the top 10 as last year. We do have a list showing some of the biggest climbers and sliders - FBR Capital Markets, for example, dropped 23 places on the public list, but it's still one of the biggest public companies based on revenue.
Washington, D.C.: Do you expect we'll see less growth among the tech companies or more because of the president's emphasis on using the web to make government more accessible?
Stan Soloway: I actually think there will be winners and losers--but identifying them now is impossible. On the one hand, the focus on open government and citizen engagement will require tremendous support from technology companies with the right capabilities. We're already seeing that in early stimulus activity and longer term plans. At the same time, the integration of business processes and activities across government might to some extent shrink some current redundancies and if and when that happens, some individual firms may lose out. But in the main, given that the ownership and innovation in technology is largely a private sector-driven phenomenon, I think we will see growth. One final point. The pressure to take the government to the next level of tech capability--and beyond--also, of course, places pressure on companies to move their capabilities forward aggressively as well.
Washington, D.C.: Hopefully if we can rise out of the recession -- what industries do you see that will start hiring first? Technology? Denfense? something else?
Stan Soloway: I think it may actually be "other"....and the other might well be construction and development, which has obviously slowed dramatically everywhere. As financing becomes more available and the economy picks up again, that might be the sector in which you first notice/see change. The tech sector has also been hit (commercially) so it too might well experience an uptick. But for those doing government tech or defense, the market remains reasonably stable and continues to grow moderately.
Alexandria, Va.: Why is the Post 200 based on revenue? Then you have companies that lose billions of dolars on your list. What about market cap or another measure?
Terri Rupar: Any measure has its problems. Think about if we based the list on market cap during the tech boom -- lots of companies with no revenue that have since disappeared probably would have made the list.
Revenue doesn't tend to be as volatile as other measures, as you can see from the relative stability of our public-company list from year to year. It's a concrete measure, not based on opinion. And we haven't gotten any complaints (yet) that by measuring by revenue we've left out companies that really deserve to make it.
So yes, it does lead to the inclusion of companies that lose a lot of money. Does anyone have ideas for alternate measures that we should use?
Stan Soloway: As we go through the current and emerging discussions and debates about contractors and contracting, it is really important to keep our eyes on some inescapable fundamentals: one, the face of government has changed; it makes little sense to try and reinvent what once was. As such, our focus really should be on what the face of government can be and should be in the future. There are major challenges facing the government, not the least of which is the need to hire an expected 600,000 people over the next several years, just to keep pace with the coming retirement wave. On top of that, the government has seen a steady, voluntary exit of peak/mid career managers and professionals whose skills and knowledge are essential. Just addressing that basic demographic tidal wave will take enormous energy and political will. If we get hung up on the politics of the insourcing/outsourcing debate, and ignore the larger reality, the government may find itself in even more delicate shape than is the case now. It's all a question of balance and clear strategic thinking. It appears that the Obama Administration understands this and is trying to steer a substantive process forward. That's the track we need to stay on.
Terri Rupar: Thanks for the questions, and thanks, Stan, for joining us and lending your expertise.
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