Here, ATK workers unpack a M230 cannon at the AUSA Convention in Washington.… (Jeffrey MacMillan/JEFFREY…)
A s 2012 draws to a close, many companies in the Washington area are facing a fresh reality: They aren’t quite as big as they used to be.
The region’s economic recovery has ambled along, but its pace has been more of a crawl than a dash. And the federal government is looking to rein in spending, particularly on defense, and that has created inertia for companies that do business with it.
Amid this challenging environment, some local firms have moved to recalibrate by spinning off businesses, paring down their workforces or otherwise cutting costs.
Efforts to get leaner were seen at Post 200 companies across a variety of sectors: AES, an Arlington-based energy firm, announced restructuring plans and narrowed its focus to fewer markets. McLean-based Booz Allen Hamilton cut 500 jobs in January and continued its efforts to shrink its real estate footprint. And in December, information technology company Computer Sciences Corp. sold its credit services business for $1 billion, part of a multi-year plan aimed at eliminating about $2 billion in costs.
“Accounting professionals have been telling their clients how to trim things, how to operate more efficiently,” said James C. Dinegar, president of the Greater Washington Board of Trade.
For many big businesses, this year has been a test of agility. They have assumed a nimble posture to adapt to uncertainties or changes in the business climate, and it remains to be seen whether that strategy will yield long-term results.
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Nowhere has the shift toward smaller, more streamlined operations been more apparent than in the government contracting sector.
Perhaps the most dramatic of those moves was McLean-based Science Applications International Corp.’s decision to split into two publicly traded companies.
But it was hardly the only company in this industry that pushed itself to slim down.
At Arlington-based ATK, “We very much have in mind flexibility in our infrastructure and workforce so we can be responsive to changes in those customer priorities,” said Steve Cortese, ATK’s senior vice president of government relations and communications.
The defense company’s total workforce dropped from 18,000 in 2011 to 14,000 in 2012, and Cortese doesn’t see that head count settling to equilibrium any time soon.
“Our workforce is going to have a constantly evolving aspect of it as we seek to be very flexible,” Cortese said.
Cortese said the company’s focus on adaptability was critical to helping it secure new business in 2012, including its big win of a contract to operate the Lake City Army Ammunition Plant, a military factory that produces small-caliber ammunition.
“We sought to be ahead of or in line with the customer’s budget,” Cortese said.
At Falls Church-based Northrop Grumman, the strategic shift toward a smaller structure has been several years in the making.
“We have been adjusting our portfolio toward things that we think have enduring value for the Department of Defense in the future,” said Stanley R. Szemborski, vice president of corporate strategy. “We know there’s going to be an emphasis on the government getting as much bang for their buck as they can.”
In addition to concentrating on lines of business it deems most valuable, Northrop has reduced its head count by about 16 percent since 2008. It has reduced the square footage of its facilities by 12 percent during the same period.
Many contracting companies, including ATK and Northrop Grumman, continued to rake in huge profits this year. But it might take time to get a full picture of the effectiveness of their strategies.
“In one way success can be judged by profitability, but the truer metric may be what emerges on the other side, and what these companies look like in two or three budget cycles,” said Roman Schweizer, an aerospace and defense policy analyst at Guggenheim Securities.
There could be ripple effects from the heightened emphasis on doing business at the lowest price, said Alan Chvotkin, executive vice president of the trade association Professional Services Council.
“The longer-term unknowns are what is the government giving up and what is the industry giving up in terms of innovation,” Chvotkin said.
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While uncertainty about federal spending weighed heavily on contracting firms, the sluggishness of the economic recovery was a key drag on other businesses.
At Strayer Education, the Herndon-based for-profit education company, enrollment was down at its Strayer University outposts by about 5 percent this fall compared with the same period in 2011.
“It’s been somewhat of a challenging year for us,” said Robert S. Silberman, Strayer’s chairman and chief executive. “The economy has continued to be under some pressure, and that’s hurt the ability of students who need a college education to afford the financial impact and the time impact” of going to school.
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