The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company
By Dr. J. Robert Beyster with Peter Economy
Reviewed by David Binns, Beyster Institute Staff

So what’s the secret to growing a start-up company with a few small government contracts in 1969 into an $8 billion company over 37 years? The SAIC Solution tells the story from the perspective of company founder Bob Beyster, who attributes the company’s ability to succeed in a very competitive industry to “a knack for hiring extremely talented people, providing them with the freedom to create the kind of business they would be excited to work in, and giving them ownership in the business commensurate with their contributions to its success.”

That formula worked quite nicely. From 1970 to 2006 SAIC grew at a compounded annual growth rate of 33 percent and was profitable every single year. During that same period its stock price rose by an annualized compounded rate of 34 percent. SAIC today is ranked number 285 on the Fortune 500 list of America’s largest companies and is the largest employee-owned research and engineering firm, and the third largest majority employee-owned company in the United States. In 2006 SAIC had more than 9,000 current contracts and employed over 43,000 people in 150 offices worldwide. At the end of that year, after 37 years as a privately-held employee-owned company, SAIC listed its stock on the New York Stock Exchange.

A self-styled “reluctant entrepreneur,” Bob Beyster had more modest goals when he started SAIC in 1969. “It was just supposed to be a good place where I could work and maybe a few people could join me, so I could continue to live in San Diego and keep my wife happy,” he notes early in the book. “Our goal was to grow a company that would be stable – where the staff stayed with the company, even in hard times.” From the beginning, despite resistance to the idea from some of his key legal and financial advisors, Beyster stuck to his philosophy that people who helped build the business should own it. An astonishing testament to his initial belief in the value of employee ownership is the fact that at the end of its first fiscal year in 1970, though SAIC’s total annual revenues were only $243,000, Bob Beyster’s ownership had already been diluted to just 10 percent. That’s not by 10 percent – it’s to 10 percent. (At his retirement in 2003 Beyster owned less that 1.5 percent of SAIC’s total shares outstanding).

J. Robert Beyster with Peter Economy at the NCEO/Beyster Insitute Employee Ownership Conference in San Diego in March.

Beyster stresses that “at SAIC, employee ownership was much more than a system of financial reward. It was integral to the company’s value system – energizing performance, motivating employees, stimulating entrepreneurial behavior, encouraging participation in decision making, increasing productivity, and making the company a formidable competitor. Employee ownership is the one thing that distinguishes SAIC from other companies.”

That doesn’t mean that it was all sweetness and light. Beyster notes that “SAIC’s business culture was very Darwinian, with the best ideas (and teams) surviving – and thriving – and the weaker ideas being pushed aside.” Similarly, “freedom came without guarantees – employees had to keep producing and continue to prove themselves. This made SAIC a highly competitive environment in which to work,” one that included a good deal of internal competition.

If employee ownership was the “glue” that kept a highly diversified company together, it was innovation that fueled SAIC’s growth. “None of us is as smart as all of us,” is a famous Beysterism. A nuclear engineer by training, Bob Beyster seemed to have an intuitive understanding that, just as no single person could keep up with the explosion of scientific knowledge, it was pointless to try to control the management of a scientific company in the traditional way. The result was “an incredibly eclectic company – a decentralized organization that explicitly encourages and rewards entrepreneurial upstarts and initiatives in new project areas and with new customers.” Such an open-ended approach to the marketing of technology solutions propelled SAIC into a leader in a diverse range of science and technology fields such as defense transformation, intelligence, homeland security, energy and environment, logistics and product support, systems engineering and integration, research and development, health and life sciences and commercial IT outsourcing.

An essential part of SAIC’s success was the result of the convergence of innovative technology and innovative business practices. The core of The SAIC Solution consists of detailed descriptions of key principles and practices that evolved over the years, including:

• People first. The organization was expected to serve customers, employees, and owners (who were employees), not the other way around.

• Freedom (with strings attached). Managers and employees were free to pursue work they were passionate about – to start, operate, control and grow their own business units under the umbrella of the company.

• From science to solutions. SAIC used science and engineering to provide the most effective, efficient, up-to-date, and highest quality solutions for specific client problems. The company put a premium on hiring the most talented scientists and engineers it could find, pointing them toward problems of national importance, and then getting out of the way.

• Employee ownership. SAIC built a culture firmly rooted in the simple idea that those who contribute to the company should own it, and ownership should be commensurate with a person’s contribution and performance as much as feasible. Over the years the company’s evolving ownership system incorporated virtually every means of providing stock incentives and ownership to employees (historically, about 90% of SAIC employees owned stock), and the company’s wholly-owned broker-dealer subsidiary, Bull, Inc., helped ensure full liquidity for employee-owners on a quarterly basis.

• Participation in decision making. Employees were not only expected to contribute their ideas to improve the company’s services, but to make decisions to put those ideas in practice. A broad range of ad-hoc and permanent committees were established to facilitate employee involvement, including the Technical Environment Committee, the Executive Science and Technology Committee, the Stock Working Group, the Business Acquisitions Council, and more.

• Organized for growth. SAIC created a very decentralized corporate structure that provided wide operational latitude to business unit managers while corporate provided essential policy guidance, and exercised financial oversight and control.

• No grand plan. Organizations were encouraged to grow organically. The company’s formal planning process emphasized flexibility and initiative over slavish adherence to “the plan.”

• Everyone a salesperson. SAIC’s scientists and engineers didn’t just do the work, but were also responsible for selling the work. This “seller-doer” model helped keep close tabs on emerging customer needs, developed close relationships with customers, and minimized overhead expense.

• Extensive feedback and lessons learned. A formal “lessons learned” process reviewed the reasons for contract wins and losses and were widely circulated among employees via the company’s robust “ISSAIC” intranet and other communications vehicles. The company’s quarterly “Meetings Week” facilitated interaction and cross-fertilization of knowledge among employees. That feedback, combined with the help of SAIC’s corporate Proposal Centers, helped contribute to a proposal win rate that eventually topped 70 percent.

• Experiment constantly. As noted by senior SAIC executive Mark Hughes: “I always got the sense from Dr. Beyster that he considered every decision he made to be an experiment. I think this is one of the most important factors in the success of SAIC. . . SAIC moved quickly and decisively at every level because we were willing to make mistakes and correct them.” Discretionary money and decision making were pushed down to the division level to encourage managers to invest in growing the company. Corporate management would restructure groups and divisions on an annual basis as needed to better position the company to respond to emerging market trends.

• Expect reasonable profit, but with stock price growth. All business units were expected to be profitable, but the plan for profit (as measured by a margin percentage) at SAIC was generally lower than at most other companies of its kind. The company’s financial model emphasized steady growth and managers earned bonuses based on a formula tied to company growth metrics.

• Governance. SAIC’s board of directors played not only an advisory role but served as a key instrument of company growth. SAIC’s employee-owners had full voting rights on their shares for all corporate issues. The chairman of the employee committee (called the Technical Advisory Committee) attended all corporate board meetings as a non-voting observer with full authority to report to employees on board issues.

Incorporating quotes from “Principles and Practices of SAIC”, a document Bob Beyster developed in the early years to encapsulate some of the company’s key operating guidelines, The SAIC Solution also offers insights and perspectives from key employees and includes anecdotes of important milestones and discusses in detail many of the features that have made SAIC such a unique corporate success story.

As SAIC grew into a diversified multi-billion-dollar corporation, the company worked to retain its small business culture and feel. Its flat organizational hierarchy, robust IT infrastructure, and geographically dispersed operations (at one point SAIC had nearly 1,000 operating divisions) enabled the company to implement bottom-up budget and operational planning developed largely by the individual operating units. In many respects, SAIC was more of a collection of small companies within a single corporate identity. According to Beyster, the “glue” that held together the many disparate divisions, each of which was involved in a wide variety of different technologies and working for a wide range of government and commercial clients, was the common incentive of employee ownership and a “loose-tight” management structure that accommodated operational flexibility with strict financial controls.

The value of The SAIC Solution is not just in recounting SAIC’s unique story, but in highlighting the company’s many innovative approaches to managing a knowledge-based business whose main assets walk out the door each night. Bob Beyster’s legacy encompasses not just the creation of one of America’s premiere science and technology companies, but also his leadership in creating a model of employee ownership and participation that has inspired many other companies to emulate that model. For those who find such model compelling, this book offers insights into the practices and procedures that made SAIC such an extraordinary success.

The book can be purchased on Amazon, or visit the Foundation for Enterprise Development website to order a copy signed by Dr. Beyster.

©2007 The Beyster Institute and its authors and their entities. All rights reserved.

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