John P. Jumper’s high-velocity military career was over, and the former Air Force chief of staff was settling into a quiet retirement in Fredericksburg.
He and his wife had built a house. He’d signed on to corporate boards. He was ready for visits from the grandkids. Then came an unexpected call to duty: an offer to run contracting giant Science Applications International Corp. The weeks since have been a blur.
Jumper, 67, and his wife, Ellen, found and furnished a townhouse in Vienna. And the four-star general jumped back into a routine he had long ago mastered with military precision: 12- to 14-hour days, an early rise to exercise, at his desk by 6:30, eating right (soup for lunch) and lights out by 10.
“I hadn’t done that for a while,” he conceded.
Jumper, SAIC’s fourth chief executive in 43 years (and its third in a decade), takes the helm amid shifting fortunes inside the company and beyond. The challenges he faces hit at the core of the business: leveraging SAIC’s distinct culture and history to manage a sharp disruption in the government contracting industry, long a stronghold of the Washington economy.
Firms that prospered from the wars in Iraq and Afghanistan — bolstering the U.S. effort, from maintaining military vehicles to managing information technology — are now cutting staffs and facilities, reorganizing to match a shrinking federal budget.
SAIC and its 41,000 workers have been dragged down along with the rest. The McLean-based company provides information technology services, intelligence analysis and scientific and engineering consulting for defense and intelligence agencies as well as for other corporations. Despite capturing more work in the burgeoning health and energy sectors, its share price is off 42 percent from its 2008 peak, as economic uncertainty has choked federal spending.
To compound its troubles, the company has a black eye from a contracting scandal related to a project to modernize New York’s payroll and timekeeping system with technology including biometric readers. It paid a $500 million fine to settle allegations of overbilling the city. Preet Bharara, the U.S. Attorney for the Southern District of New York, called the case “perhaps the single largest fraud ever perpetrated on the city of New York.”
On his third week at work, Jumper wrote a memo to colleagues addressing the matter — even though it took place before he became chief executive. “Each of us must be vigilant, holding each other accountable,” he wrote, so that “an incident like CityTime never happens again.”
It was a call to arms from a fighter pilot who’s logged more than 1,400 combat hours.
“He’s a guy that takes names and kicks butts. That’s the way you run a big outfit like the Air Force,” said Arnold Punaro, a former SAIC executive and retired Marine Corps general. “If he doesn’t do that, I’ll be very surprised. And if he doesn’t do that, the company’s performance is not going to turn around.”
What stands out to others is that Jumper has little corporate experience beyond five years on SAIC’s board.
“SAIC needs a leader who is ready to address a rapidly changing marketplace without any preconceptions about how business used to be done,” said Loren Thompson, a defense industry consultant. “Whether Jumper can meet that need is an open question.”
SAIC was never a business-as-usual company. The government contractor, founded in 1969 by physicist J. Robert Beyster next door to a ballet studio in La Jolla, Calif., began as an employee-owned consultancy. Workers were rewarded for their autonomy and entrepreneurship.
Beyster, now 87, recalled in an e-mail that the office, which had an ocean view, was brimming with energy. Hiring top talent was a priority, and he set up a system that awarded people company stock when they landed new work.
Each business unit prized its independence, and they competed against one another as much as against other companies, according to Thompson.
Beyster set SAIC apart from other government contractors, which had more traditional, hierarchical corporate structures. Over nearly 35 years, he built it into a Fortune 500 company with more than 40,000 employees.
By the time Kenneth C. Dahlberg, formerly of General Dynamics, took over from Beyster as CEO in 2003, SAIC was shifting toward the model of its peers. And like so many others, it benefited from the boom in defense spending after the Sept. 11, 2001 terrorists attacks: Its revenue surge to $11.1 billion in 2011 from $5.5 billion in 2000.
Dahlberg took SAIC public in 2006, accelerating its transformation.
Walter P. Havenstein took the helm in 2009 as CEO three days before the company announced it would move its headquarters from San Diego to Tysons Corner, putting it near competitors like General Dynamics and ManTech. Northrop Grumman and Computer Sciences Corp. have also made the pilgrimage east from California.
A new strategy emerged for SAIC, as Havenstein tried to steer the business to better capture government work.
In recent years, federal officials who award contracts have come to depend more and more on what’s known as a contract vehicle, which companies have come to think of as a hunting license because it clears them to pursue projects. This approach, ultimately more efficient for the government, has forced some contractors to rethink how they do business.
In the past, an employee’s convincing pitch or professional connection with a government official might have reeled in a small or midsize contract. But sprawling contract vehicles are decided at a high level and then can be broadly used across agencies and offices.
These vehicles give the government a pre-approved pool of vendors, making it simpler and quicker to buy what it needs. But for contractors, it means considerable uncertainty. They might earn a spot on a vehicle worth several billion dollars, but it’s unclear how much money the government will spend or how much the company will make.
In this model, SAIC’s nimble, entrepreneurial units lose much of their appeal.
SAIC needed to adapt by taking advantage of its size — and its ability to fulfill a whole range of tasks that a contract vehicle might include, according to Havenstein, who left the company in February.
The market pressures are, of course, great: As companies restructure to show all that they can do, they must cut costs to remain competitive. Increasingly, the government has selected the “good enough” bid that’s cheaper — as long as it meets the basic requirements — rather than giving the traditional nod to the “best value” proposal, even if it costs more.
For an industry shaped by war, the political battle lines in Washington have proved especially disruptive, as lawmakers feud over the deficit and the size of the federal budget. November’s election brings even more uncertainty. And uncertainty tends to hold up contracts.
SAIC reported last year that it had up to $30 billion worth of submitted proposals awaiting decision — a record and a more than $10 billion increase from the same quarter a year before.
“We have a rough time in the industry now,” said William Loomis, managing director at Stifel Nicolaus. “This is not going to pass quickly.”
Jumper comes from military blood.
His father never graduated from college but earned a slot in a prestigious program to train talented soldiers to be pilots. By the time he reached the rank of two-star general in the Air Force, the family had put down roots time and again.
Jumper, born in Paris, Tex., went to 20 schools in 12 years, spending his longest stint in Alaska, where he watched the territory become a state in 1959. He graduated from high school in Hampton, Va., home to Langley Air Force Base, and attended Virginia Military Institute through the ROTC program. In Hampton, the family settled on a street where Mercury 7 astronauts also lived, and it sparked Jumper’s imagination.
“I was watching Alan Shepard in his ’62 Corvette race around the runway on the ring road around Langley Air Force Base at age 16 or 17,” Jumper said. “I thought that was probably the coolest thing that could ever possibly happen in your entire life.
“These guys were all fighter pilots, so it never occurred to me to do anything else.”
After more than 30 years in the Air Force, Jumper took over the branch’s top military job: chief of staff, serving President George W. Bush.
He led the service through a challenging time — his first day at the Pentagon was Sept. 11, 2001 — as it shifted into fighting multiple wars. During his term, the Air Force struck a deal to lease aerial refueling tankers from Boeing, but the arrangement was later canceled after a corruption scandal was revealed. (A manufacturing contract would be awarded to a Northrop Grumman-European Aeronautic Defense and Space team in 2008 and then canceled, before Boeing won once again last year).
After Jumper retired in 2005, he embarked on his first tour through Corporate America by serving on the Goodrich board. There he met A. Thomas Young, the non-executive chairman of SAIC’s board. Jumper said he joined SAIC’s board in 2007 at Young’s suggestion.
Jumper was an unexpected choice for the chief executive role. The board looked outside, hiring Savoy Partners to conduct the search. (It had landed Dahlberg and Havenstein before.)
Robert J. Brudno, a managing director at Savoy who has run executive searches for other big contractors, said he had a shortlist of candidates and — with the help of SAIC’s search committee — homed in on one interested and qualified person.
“I think it was a genuine effort on the board’s part to trade off recruiting a new CEO from the outside versus giving that opportunity to an insider,” he said. “Given the fact that the previous two choices had been outsiders, it is easy to understand why they made the decision they did.”
Young, the SAIC board chairman, said the selection process was difficult.
“We conducted a thorough and thoughtful search,” he wrote in response to questions, adding that the board wanted “a strong knowledge of SAIC coupled with a deep understanding of our customers’ perspective.”
It’s not uncommon for defense contracting CEOs to have some military background. Havenstein, for instance, served as a Marine. Jay Johnson of General Dynamics was an admiral, and David Melcher of ITT Exelis was a three-star Army general.
When Jumper emerged as the candidate, he said, he talked it over with his wife, who saw in the job a calling.
When “all the alternatives were sort of weeded out, there I was,” he said. “It was always a consideration that someone on the board would have to step in, so it wasn’t a complete surprise.”
He signed on for a base salary of $1.2 million, a $150,000 signing bonus and is eligible for incentive pay and share options worth millions more, according to a Securities and Exchange Commission filing.
The new CEO has read Beyster’s book, “The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company.”
When he talks about the company, Jumper invokes its founding principles and its “very entrepreneurial spirit.”
The core values will hold, he said, but the company’s strategy has “got to be adjusted to the realities of the contracting world that we’re in right now.”
As he sees it, autonomy remains central to SAIC’s corporate culture, even if units cannot operate “with all of the freedom that Dr. Beyster was able to give in a different world.”
If SAIC can cut its overhead costs and better position itself to win work, then its units can operate with “as much freedom of action as we can in the world we live in today,” he said.
As the U.S. government market weakens, he said the company will chase more commercial work, particularly in the health information technology and energy sectors.
Not everyone is sold on the four-star general.
“Jumper has a distinguished career, he’s been a part of SAIC for a number of years now,” said Michael S. Lewis, director of equity research at Lazard Capital Markets. “But I really felt that an outside candidate would have been probably the best choice to reinvigorate the business as a whole.”
“He doesn’t have recent experience interacting with the kinds of markets and customers that SAIC now depends on,” he said.
For his part, Jumper is confident he can command this business.
“The company I ran in the Air Force was 750,000 people with a budget of $110 billion a year. And we were at war,” he said. “So you [made] difficult decisions — including business decisions — because you were dealing with the taxpayer’s money . . . and the commodity you’re dealing with is people’s lives.”