The former Assistant Secretary of State for Political-Military Affairs sat down with ExecutiveBiz to discuss his thoughts on federal budget constraints, the spate of awards Sotera won for its 2012 performance and how he has seen GovCon evolve during his time in public and private service.
ExecutiveBiz: How does Sotera’s recognition in the Washington Post 200, Defense Systems Super 75, the Government Contractor (GovCon) Awards as Contractor of the Year (over $300 million) measure against some of the other big successes you’ve had in your career?
John Hillen: It’s really gratifying for us from a strategic standpoint. Six years ago this month, the company started with two or three of us, an idea and an initial investor backing the idea and that was it.
In less than six years to be recognized by the GovCon awards, Washington Post 200 and Defense Systems, among others is very gratifying. We were able to see an initial strategy through, recalibrate and change based upon the market, but essentially stick to the initial vision through multiple iterations of ownership, names and brands. We emerged on the other side of that initial idea with those accolades and the company we had originally set out to build.
ExecutiveBiz: What were the original goals when you sat down in that office? What were you trying to build? What were you trying to achieve?
Hillen: We decided in late 2006 that the defense and intelligence market space needed a mid-tier prime contractor that was focused on high-end mission solutions. In days past there were plenty of these kinds of companies, but in recent years they had for the most part disappeared because they were acquired by some of the larger aerospace primes or other contractors.
We knew that our government customers really wanted agile, mid-tier, innovative companies that were entirely focused on the technology solutions in and around the more problematic defense and intelligence missions but those companies didn’t really exist in the space so we set out to one. Our vision never changed and I think the accolades you mentioned among other things are the market’s recognition that we have become that company
ExecutiveBiz: What are some of the benefits of being a mid-tier prime contractor as opposed to a Lockheed Martin or a very small contractor?
Hillen: There is an old saying – you never want to be in the middle of the road –there are only dead skunks and yellow lines there. We disproved that saying when you consider mid-sized in the national security contractor market.
Our successes have proven that there are real advantages for customers who partner with a mid-tier prime contractor. On the one hand, we are big enough and complex enough as an organization and have the necessary wherewithal to be a big prime contractor. Sotera was part of a group of just 10 or 12 primes awarded a $7 billion IDIQ contract by the Army Communications and Electronics Command. That’s a big deal.
Over the next couple of years, a very complex set of work that will go through that contract vehicle with its $7 billion ceiling and for us to be in the circle of prime contractors with Lockheed Martin and Northrup Grumman is really amazing.
We’re also small enough to be an agile competitor with minimal levels of bureaucracy with the high degree of familiarity between all our employees and our customers. We have a very flat management structure with the ability to be very innovative and agile in our thinking without going through committee after committee or layer of approval after a layer of approval.
I think it’s striking that balance. To be big enough to matter in the minds of customers and as a prime contractor you’ve got to be able to do a lot of different things. You have to have a lot of different technological capabilities. You have to have a lot of different customer relations. But you don’t want to be so big as to trip over your own weight.
ExecutiveBiz: What drove Sotera’s success in the past year and what are your growth drivers for the future?
Hillen: We were probably the second or third fastest growing company in the space and we won a lot of business this year. We had many new bookings and I think what drove that is picking the market spaces in which we wanted to compete and being relentlessly focused on them.
Sometimes the hardest decision we have to make in the top management team what we’re not going to do. This year we laid out a business plan wanting to build in several key areas: cyber, signal’s intelligence, data fusion and analytics, counterterrorism and both the technology and the analytic functions in and around counterterrorism and also information technology in and around high-end missions.
We focused on those areas and found contract vehicles and customers and bid opportunities within those and concentrated our efforts there. We had a very high win rate. We lost some things, but we won more things and the overall effect of it all was the business has advanced on all of these fronts, which are mutually supportive and a little bit interrelated. They also happen to be areas that even in this budget environment are well funded priority mission environments for our customers.
ExecutiveBiz: You were at SRA International, CGI and American Management System before it was acquired. Are there any experiences at those companies that really affected the way you set up Sotera or the way you manage Sotera?
Hillen: Yes, SRA and AMS were highly focused on the customer and the employee culture. I think we brought those elements over to Sotera and that doesn’t just come from me. What I learned in both those companies and brought to Sotera is that the first citizen of this kind of company is the one who is touching a customer directly and solving their problems.
You tend to get wrapped up in the executive ranks with all the hurly-burly in and around some of the big corporate things. We did an IPO here and we’ve brought in foreign investors. We’ve been bought most recently by a big private equity firm and done acquisitions and all that big strategic activity gets your picture up on the wall in the Palm and your company in all the magazines. But it’s the day-to-day face-to-face interaction between the employees on the ground providing a solution to a government customer that pays the bills – including mine.
If I were to draw a “real” org chart it would have our employees who were touching the government customers at the top and me at the very bottom as the least important. My senior staff are all here to support the employees and assist them in their goal to solve the customers’ hardest mission problems. That attitude creates the company’s culture.
Our culture is very solutions-focused and very customer-focused and I think those are things that I’ll bring with me wherever I go. I seek like-minded people around me and a lot of my partners here at the firm had similar cultural outlooks and experiences based on the companies where they had worked.
ExecutiveBiz: As we start the New Year, government contracting is going through a period of budget constraint and I wanted to get your thoughts on the fiscal cliff and sequestration?
Hillen: Well, any opinion we have on this is going to be really perishable with how fast everything is moving. I think the deal that congress and the President arrived at a couple of days ago is going to be a tough one for the government contracting industry.
They kicked the can down the road on sequestration cuts and spending levels and made it very, very hard for government agencies to budget and plan. Because we’re partners of government agencies and often help them with that whole process, when they have difficulty budgeting and planning, then government contracting businesses will struggle as a result. As a former government employee , I’ve worked through budget cycles in two different departments and observed them very closely. I learned that under normal circumstances, it takes all of an agency’s efforts just to manage its regular government budget within a year – and even then there’s no guarantee they’ll get the whole process right.
Congress hasn’t passed an entire slate of appropriation bills to fund the government on time since the mid-1990s I think. That’s really pathetic. We’ve come to expect emergency continuing resolutions as the funding norm. I had breakfast with a congressman recently and he was congratulating himself and other members of Congress for being able to pass that six-month continued resolution that continued to fund the government.
I thought to myself, are we actually at stage where we’re congratulating ourselves for having six-month stop-gap spending measures instead of just funding the government along its constitutional lines? On top of all that, the recent fiscal cliff deal added a two-month period in which agencies are being asked to make discretionary cuts to pay for half of the sequestration delay. You’ve essentially asked the agencies now to budget the year in three separate chunks under rules that are only being shown to them right before they have to start. I really am simpatico with my government partners in trying to figure that out.
The number one concern for government contractors isn’t the end budget number,. Rather, it is certainty about a budget number so you can think and plan with your customers. I think for the good technology-based contractors, business will go up. Right now about 30 percent of the federal budget is a technology-oriented spend. I think that is likely to go to 35, 38, 40 percent over the next few years and I think contractors will do a considerable portion of that. So, the issue isn’t really whether we have a high number versus a lower number on the spend – we should just have a decision! I think the continuous uncertainty and short-term funding and thinking by congress that is going to have a paralyzing effect on agencies and therefore will delay the growth of government contractors.
ExecutiveBiz: You’ve been in the public and private sectors during your career, how has government contracting evolved and where is it going?
Hillen: Government contracting used to be a real cottage industry. Your big aerospace firms were located somewhere else, like California or Georgia. They were building tanks, ships and planes and doing what aerospace firms have always done. Then you had your munitions firms that provide ammunitions and supplies for the military. The rest of the government basically just bought office supplies and various odds and ends.
Government contracting started coming on the scene in the 70s and AMS was one of the very first companies built behind the notion that computing power could be used to solve government problems and advance government services – what a crazy idea that was. There was information technology around then of course, but the big companies that offered technology services were generally not interested in government because it was a different kind of client that seemed to have lots of rules and regulations.
Back then, you really didn’t see the IBM’s and other businesses of the world looking at government as a growth market. Our government didn’t spend that much in discretionary funding on IT. Then, it really boomed during the 80s and continued to grow until the 90s into our own generation when you had a real flowering of technology and advancing of the number of things government was trying to accomplish. There was also a recognition that doing its own information technology, infrastructure, applications or otherwise was not a core competency of the federal government.
The combination of roles and missions expanding in the government, increased spending on technological advantage for mission accomplishment, and then technology needing to be bought from somewhere else really gave full flowering to the community. As a result, government contracting has gotten very professional. It’s no longer just a cottage industry of some quirky firms for whom business development is going over and seeing one’s old government pal, Bob who used to be the program manager when you were the deputy program manager.
Now business development is very transparent. It’s very sophisticated. It’s all about pricing and management excellence and technical solutions development. There are a lot of companies involved. It’s highly competitive. Many of the companies are publicly run and therefore open to a high degree of scrutiny and a large investor base.
I would say if the 70s were the early juvenile years and the 80s were kind of the teenage years of government contracting, I think the 90s and 2000’s is where government contracting went through it’s young adulthood and into its early midlife. It has yet to reach its prime. If you look at demographic trends in the government workforce, some 40 percent of the government workforce is going to retire in the next 10 years.
Right now, according to recent Professional Services Council study, the ratio of older government workers who deal with technology to young government workers in the same fields is 7 to 1 and so that’s seven-eighths of the government technology workforce is going to be among those retirees in the next 10 years. So, for both those reasons, the government is going to need to really continue to grow its ability to rely on an outside contracted workforce to deal with technology development and work.
I also think technology moves too fast for the government to really manage. They can barely keep up with having enough in-house technologists to understand their own needs and capabilities, let alone implementing the solutions themselves. I think that is going to continue to make outside contractors who provide technology-based solutions very important. Another key point that I learned when I was a senior government official, is that government manager’s want a flexible workforce.
The federal government workforce is a great one, but it’s very inflexible. There are a lot of rules about getting people to change their jobs or change their roles or promote them or move them or anything like that. With contractors, you can bring them on in a day and you can fire them in a day and there’s a lot of flexibility about short-term and flexible roles on missions.
Whether it’s demographics, technology, trends or workforce flexibility, I think the future of government contracting is very bright and I think the whole industry will continue to grow and become even more professional. But, if you’ve had the long view of it, it’s come quite a ways way from essentially a set of so called Beltway bandits 40 years ago to now a highly professional and increasingly broadly invested in industry.
ExecutiveBiz: Going off you talking about your government service, you spent 12 years in the Army; you were Assistant Secretary of State under President Bush. Why did you decide to perform that public service and why do you think it’s important to do that?
Hillen: I’ve mentioned that I think the first citizen of this kind of company is the one touching the customer. Therefore it really helps if you know how to walk a mile in the government customer’s shoes. We’re a services business and in services business, you’ve got to get inside the mind in the head of your customer and make yourself valuable to them because that’s what we offer.
We offer a set of services intended to solve their problems. We need to be about them. So, I think it’s important for people in this industry to demonstrate a high level of understanding.
That understanding is often broadened and deepened by being on the other side. When I was a government official, I wasn’t in a position where I was doing technology procurement or some of those things, I was a mission and policy person. But you know it gives you real insight as to what it takes to run a complex government and in my field, complex national security related things.
It’s about being as good as one can be by having as much understanding of your customer as possible so I wouldn’t trade those government experiences for the world. I’m sitting here in my office literally looking across the desk at a quote from Teddy Roosevelt,
It is not the critic that counts not the man who points out how the strong man stumbles or the doer of deeds could have them better. The credit belongs to the man who is actually in the Arena, whose face is marred by dust and sweat and blood who strives valiantly who errs and comes short again and again, because there is no effort without error and shortcoming but he who does actually strive to do the deed who knows the great devotion who spends himself in a worthy cause, who at the best, knows in the end the triumph of high achievement, and who at the worst, if he fails while daring greatly, knows that his place shall never be with those cold and timid souls, who know neither victory nor defeat.
It’s not about victory or defeat. It’s all about getting in the ring and doing it.
All around the firm at every level we have leaders who have spent part of their careers getting in the ring and doing it because it’s hard. It’s hard work in the government and sometimes at the most extraordinary cost to accomplish the national security mission and a lot of us in Sotera and elsewhere in the industry have been there and got a lot of dirt under our fingernails. I think we’re much more in-tune with our customer as a result.
The last thing I think that motivates a lot of us at Sotera is it’s just the right thing to do. Here we are working in a government contracting industry with rules and regulations; some of them obtuse and bothersome, some of them seemingly without a lot of purpose and it’s generally an industry in which the firms – and rightly so – make a much lower profit than an Apple or a Coca Cola or an Exxon or some normal industry.
So, with all that, why do people work in this industry? Well, I found that people do work in this industry is because they believe in their government and they are patriots in that sense. They want to work in and around the government. They want to see it succeed and I don’t find anything cynical or corny about that. I think it’s an admirable virtue.
Those kinds of things probably motivated me and I think they motivate most of the other people here and elsewhere in the industry who have decided to do a hitch in government.
ExecutiveBiz: You have published a number of articles and books. You have had fellowships at CFR and other major things such as being the editor at National Review. How do you balance all of that intellectual work with being the head of a company like Sotera?
Hillen: A lot of that is in the past. I haven’t written a book in over a decade. Perhaps I’ve got a couple inside me that I’d like to write at some point, but you can’t do all of those things together.
My first focus is here. It is in growing Sotera and continuing to move the company upwards. I do write an occasional op-ed, give a speech, or author an article. I still do some book reviews, which I enjoyed doing and I’m still involved in some intellectual pursuits such as serving on the boards of schools and think tanks.
That just keeps my brain alive and flexible. Almost all of the things that we do in any of those other pursuits, come back and help me just be a better more thoughtful leader here at Sotera. They help me to be a better CEO. I focus on strategic and interpersonal issues, not technical and tactical ones. At the end of the day, there are really only three things that I’d never delegate in this firm:
One, I’ll never delegate strategy or the trajectory of the firm, its place in the market and exactly how are we going to get there. Now, I have a lot of experts including probably the best corporate development and strategy person in the industry as my partner, but ultimately I’ve got to be responsible for strategy and the decisions we make at the firm in and around our strategy.
The second thing I’ll never really delegate is being the face and the spokesperson for the firm. I’ve got a fantastic number of people around me who can speak for Sotera and do various things. But in good times or bad, particularly if something goes wrong or something tough needs to be explained to employees, I’ve got to be the one who is the face of the firm.
And the last thing is I’ll probably never delegate what I call leadership development. I think leaders need to really pick and develop other leaders and I lead that process here at Sotera. I don’t think that should be outsourced to psychometric testing firms or professional development consultants or any of those other options.
Another advantage to some of my “outside interests” is that they help me feel in this market a future that has not yet happened. Broad thinking allows one to seek complex answers to difficult questions and that helps me come back here and be better at those kinds of tasks for which I hold myself accountable.
ExecutiveBiz: Do you have suggestions to how the government should do that?
Hillen: I do. I laid out some in a recent speech to the Washington Board of Trade. Sequestration is not one of the ways I would suggest, I think it’s fair to say. There are a lot of good reasons to either raise government spending or cut government spending and I’ve done both. None of those reasons are being given right now.
The sequestration mechanism of just mindlessly taking an equal amount from every program, project and activity in government across the board to meet an arbitrary cut level that was based upon yet another arbitrary notion of a debt ceiling is a bad way to do it. It takes all the thinking out of the process.
So, yes, if I were going to size our government correctly to the kind of revenue we could possibly bring in, as well as consider our obligations in and around our debt. I would start with what do we want our government to do – not how much taxes we could raise or how much spending we could cut, but what do we want our government to do.
I think when you go agency by agency you get different answers.
Every organization has to ask itself what it wants to be in the business of doing, how it should they get that done, how it measure whether it win or loses at it, what kind of consequence and impact does it deliver when it wins and who benefit from the win, who else is out there doing it and if they might be able to aid in the mission, what forces are pushing against it that will make it more difficult. These are all the standard questions people ask about anything and our agencies need to look at their budgets and their missions in that context not in the context of I exist because I exist and I can only cut what exist or grow from the point in time where I am