The New Booz & Co.
By Zachary A. Goldfarb
Booz Allen Hamilton, the giant McLean consulting company, today gave more details about its plan to separate its commercial management consulting unit from its government business.
The new management consulting company, focused on companies and foreign governments, will be called Booz & Co. and be led by its current president, Shumeet Banerji. The commercial company will not have a corporate headquarters; most of its 3,300 employees are not based in Washington. As a standalone firm, it will join the ranks of strategy consultants such as McKinsey & Co. and Boston Consulting Group in sending small teams to organizations to assess how they can become more profitable or efficient.
Booz Allen announced its split Friday, saying District-based private-equity firm Carlyle Group would buy a majority stake in the government unit for $2.54 billion and the smaller commercial unit would be spun off. The deal is expected to close by the end of the year.
With 13,000 employees locally, Booz Allen is one of the largest area employers and one of the largest providers of services to the government. The split came after more than two years of soul-searching at the firm, which has struggled to reconcile the diverging paths of its units.
The government business surged with the post-Sept. 11 boom in government spending. The commercial unit, however, has not kept pace, amplifying differences between their cultures, management and clients.
In an interview, Banerji, who is based in London, said Booz & Co. will place a bigger priority on securing business in developing countries than it was able to as part of the much larger company. Most of its top executives work outside the United States.
"With a large U.S. government practice, the priorities looked different as you looked around," he said. "Do we really want to make a play in Russia or do we want to go after one more large contract in the U.S.? The way you look at the world depends on what your opportunities are."
In addition, he said Booz Allen's classified work put constraints on some of its consultants.
"Moving intellectual capital around the firm, you have to be very careful. A lot of things we're doing are highly classified," Banerji said. "It's probably a hundred of these sorts of things that add up for the case for change."
Those differences include cultural ones: The commercial unit hires generally from the top business schools. The government unit looks to the military, government, engineering firms and others for staff. The commercial unit operates in small groups led by a top executive and looks to promote people within years or get rid of them. The government unit has working groups of 100 or more people and employees can remain in the same position for years.
Banerji said the commercial division is unlikely to pursue U.S. government work for at least three years, but there may be opportunities down the road. In the past, the business objectives of the commercial unit and the government unit have sometimes conflicted.
"When the government business is serving the Army, it makes it very difficult for us to serve a defense contractor because there's an obvious conflict of interest," he said.
In a statement, Booz & Co. said it has experienced double-digit growth in recent years. While the government unit is taking on an unspecified amount of debt to facilitate the purchase by Carlyle and the buyout of the commercial division, the commercial section will be debt-free. More than 200 senior executives will own Booz & Co.
Some analysts have wondered whether by splitting the company, the new units will be deprived of each other's experiences and resources. But the units say they have an agreement to work together even after they split up.
The company's roots are in its commercial division. Edward Booz founded the firm in 1914 as a management consulting firm.
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