If you were going to fashion an enterprise designed to cope effectively with a global pandemic, you probably couldn’t do much better than the business model created by Leidos.
The top-ranked provider of information technology, science and engineering services to diverse federal agencies generates 87% of revenues from the U.S. government, and thus is less exposed to the economic downturn than many commercial companies.
The services it supplies to the government are almost all essential, from its support of intelligence agencies to life sciences work with the Centers for Disease Control to management of FEMA’s strategic stockpile.
And its “capital light” business model transitioned readily to telework when employees were urged to self-isolate at the onset of the coronavirus crisis.
Leidos Chairman and CEO Roger Krone has been pleasantly surprised by how readily his company adapted ... [+]
Of course, it helps to begin a difficult period in good financial shape, and Leidos finished its 2019 fiscal year with record sales, record organic growth, and record backlog. The company’s forward guidance for 2020 was that revenues would be well above $12 billion, making it one of the biggest providers of technical services to the government.
Shareholders will find out in May whether that guidance remains intact, but at the moment Leidos seems to be faring far better than most Fortune 500 companies in the crisis. Chairman and CEO Roger Krone says he is “amazed” at how well his company is dealing with the pandemic.
I talked by phone with Krone on Tuesday to get a read on where Leidos stands, and it proved to be a surprisingly upbeat exchange. Krone says the “overwhelming majority” of his employees are going to work each day, either from computers in their homes or by showing up at company sites.
In fact, Leidos continues to hire new talent despite the crisis, bringing on a hundred or more employees each week in the expectation it will add at least as many new workers this year as it did last year. New hires last year totaled 8,000. The company already did most of its recruiting virtually before coronavirus, so the crisis has barely impacted hiring.
CEO Krone doesn’t downplay the consequences of the pandemic. Although the impacts on his own company have been relatively small, he thinks coronavirus will create a “new normal” for American business and society. Many activities that were routine in the past will have to be rethought. Even as Leidos looks to implementing a “soft opening” of its offices, it is reviewing corporate standards and governance with an eye to assuring it encourages healthy behavior among employees.
Krone observes that his father was a product of the Great Depression, and the work-ethic he grew up with dictated that one never miss a day at the office. That isn’t the right mindset for a global pandemic, and therefore the company is framing a new approach to what he calls “corporate etiquette.” The last thing that Leidos needs is for sick employees to show up at the office.
Krone has taken a benevolent approach to his workforce during the crisis, urging employees to think first of their families and avoid taking risks. He views the pandemic as an opportunity for the company to demonstrate how much it cares about workers, whom he views as the source of the company’s success.
And although he didn’t tell me this, I learned from other sources that he has donated his salary to the company’s relief fund since the crisis began.
Because the Leidos healthcare unit is heavily engaged in life sciences work that includes viral research at a federal cancer lab in Frederick, Maryland, the company caught on early to the threat posed by coronavirus. The company banned business travel on March 1 and shortly thereafter began formulating continuity-of-operations plans for both itself and customers.
More broadly, Roger Krone’s management team is thinking about what coronavirus signals for the future of American business. The pandemic hit while Leidos was in the middle of its annual strategic planning cycle, and a key focus of that process each year has been assessing what is the optimum business model for a twenty-first century enterprise.
Novel coronavirus and COVID-19 have added a new element to deliberations. In some ways, though, the crisis has reinforced thinking already common among executives about what kind of business will thrive in the future. Like other big companies, Leidos had disaster plans in place for dealing with everything from hurricanes to cyberattacks, but coronavirus has revealed how readily the enterprise can adapt to out-of-the-blue surprises.
That may be one reason why Leidos has continued its pattern of organic growth and acquisitions in what promises to be the worst year on record for much of corporate America. In January, it purchased national-security research company Dynetics for $1.65 billion. In February it announced it would acquire the security detection and automation business of L3Harris for $1 billion. The deal will close later this year.
Meanwhile, it has won some very big contract awards from the intelligence community, defense agencies and the military services. Earlier this month, a $6.5 billion award to manage and defend the defense department’s global information network was confirmed. A $7.7 billion award to manage the Navy’s next-generation intranet—the biggest intranet in the world—was won in February. (A protest was lodged by companies that lost the competition, which is common in such awards.)
The recent acquisitions and awards are focused mainly on security and safety, themes that run through much of what Leidos does. Although only about half of its revenues are generated from defense customers, its civil and healthcare units are also heavily engaged in work bearing upon the security and safety of Americans. For instance, the Department of Veterans Affairs is a major healthcare customer, and the Department of Homeland Security is a major civil customer.
The coronavirus crisis has raised the visibility of infectious diseases as a security concern. What impresses Roger Krone is how well his team has managed a crisis that virtually nobody anticipated when the year began. Like any other crisis it will be a learning experience, but so far Roger Krone is encouraged by how his company has responded.
