Booz Breakup

                                              Is Booz Getting Split?

                            In what must be the worst kept secret around in professional services, Booz Allen Hamilton is rumored to be selling off its government consulting business to the Carlyle Group. In this story, first-rate publications like the New York Times, Washington Post and others are reporting the impending sale.

In reviewing these reports, it appears that Booz may have:

• to sell its brand name along with the government business
• most of its workforce tied up in the government business
• its steadiest earnings from the government business
• more top executives in its commercial business than its government business

There seem to be a lot of people reporting that:

• the commercial sector accounts for as little as 20% of the firm's $4billion in annual revenue
• the commerical sector generates greater margins (although some persons have vigorously disputed this assertion).
• the company is facing an internal schism between the executives in the two business units

When the top executives within a service cannot agree on a uniform strategy or direction all heck breaks out. I know this well. I am intimately familiar with a situation where:

• partners in one business unit resented the higher incomes that partners in the other business unit made
• those concerned partners saw their ability to control the firm (and their destiny) slipping away as the other business unit continued to grow at faster clip. The smaller but growing business unit would someday have more partners and the balance of power would permanently shift away from the other business unit
• the concerned partners wanted to sell the more prosperous business unit while they still could and recognize a sizeable profit for themselves

For a time, the two partner groups created a solution that created an earnings pool that would transfer some percentage of 'excess' profits to the partners in the lower earning business unit. The two business units were then legally separated with only a miniscule connection binding the firm's earnings together.

That deal eventually unravelled as the lower earning (but well subsidized) business unit used its transferred earnings to create a competitive business to its better run and more profitable sibling. Obviously, this created substantial friction and distrust. Eventually, one Business Unit's leaders had enough and filed for a divorce. Actually, they requested an arbitrator to finish the severing of the two organizations and terminate the excess earnings transfer.

In the Booz scenario, I'd recommend:

• Bring in an outsider, a tough independent person, to arbitrate the issues between the two factions. If Booz really has a 80/20 split between government and commercial business, then the smaller firm may suffer mightily post-split. Booz needs an outsider as no internal executive can play the role of King Solomon or the Great Uniter without any taint of bias to one Business Unit or another.
• When one group of partners think they are going to receive a windfall from selling off one of the firm's business units, bring in a group of Wall Street bankers to explain to them how this really works. Rarely are the benefits as big as the dollar signs in these partners eyes.
• Make sure everyone understands that the both business units must be made whole so that each can operate independently.
• Understand which professional staff and intellectual property will go with each entity post-sale. A lot of career-minded, advancement oriented professionals will not want to work in the business unit you want them to follow. Moreover, don't be surprised when some of them only want to work with the Booz Allen Hamilton branded business unit whichever that one is.

Yesterday, I received my subscription renewal form for Strategy+Business, the excellent magazine produced by Booz. I think I'll wait on renewing until I see how this situation unfolds.