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The recent economic downturn was hard on many systems integrators. American Management Systems Inc. has felt the impact, but it has relied on a diverse range of offerings, including software products as well as consulting services, to weather the storm. Alfred Mockett has been Chairman and CEO of the Fairfax, Va., company since December 2001. In that time, he has worked to shore up the bottom line and now seeks to expand in certain markets, having acquired R.M. Vredenburg Co., a systems integrator specializing in work for the federal government. Mockett recently shared his strategic vision for AMS with eWEEK Executive Editor Stan Gibson and Editor in Chief Eric Lundquist.
As a systems integrator, your approach is unique because youre selling software products as well as doing the integration work. Why do you believe that model is best?
Were an unashamed hybrid. Were part systems integrator, part software developer. Were part service provider, part business consultant. The business model has stood us in good stead in the downturn of the business cycle. About 10 percent of our revenues are from products—licenses and maintenance fees. But for every software license dollar, I get $5 of drag-along systems integration revenue. It is our unique intellectual property, our software, that gets our foot in the door and then keeps us with the customer. In a downturn, where systems integration revenue tends to be project-oriented and discretionary, a company that offers only systems integration is disadvantaged.
The trouble is, Wall Street looks at the business as either product development or systems integration. But we are clearly a hybrid, and that makes it a rather difficult proposition for Wall Street to understand. Were educating them in a new business model because what I see is convergence in our industry.
So youre into scale and diversity?
Yes. In order to achieve the scale necessary, it takes a combination of organic and inorganic growth. Our objective is to grow one to two times the market organically and to supplement that with skills-based acquisitions looking for unique intellectual property, a customer base and the people necessary to fulfill the commitment.
Is that what you were looking for in the recent acquisition of Vredenburg?
I was looking for a deal that would be an excellent cultural fit, strategic fit and business model fit and would be earnings-accretive from Day One. Vredenburg is a government contractor with particular expertise with Navy, intelligence services, information protection and workflow management. Weve known them for a number of years, and they have a similar hybrid business model to AMS. There are revenue synergies and cross-selling opportunities in selling to the same accounts. Vredenberg has about 300 professionals with top security and polygraph clearance. Were coming to the end of a two-year restructuring. With Vredenburg we acquired some capabilities to complement our existing capabilities.
Lets go back to when you came to AMS nearly two years ago. What strategic direction did you adopt?
First, we were playing in too many countries, so we reduced it to 10 countries. Second, I concluded we were focusing on too many verticals, and I wanted to focus on only three. So I combined DOD [Department of Defense], federal civilian, state and local units into a single business.
Then I broadened our telecom practice into communications, media and entertainment as a single vertical. Then I formed the financial services group. I disposed of our energy practice at the same time. Then I focused on three services lines: enterprise integration, managed services—business process outsourcing and applications management—and third, innovation and transformation.
In our coverage of General Motors Corp., CIO Ralph Szygenda said he wants to slice up huge contracts into small pieces, have outsourcers compete over them, then have them cooperate with each other when the deals are done. Do you see a world in which you and EDS [Electronic Data Systems Corp.] and IBM Global Services would be forced to compete for pieces of the same contract and then cooperate on the work?
There is a trend of consortium bidding, and the federal government has been leading the charge. Collaborative behavior has to be engendered during the RFP [request-for-proposal] phase and the negotiations that follow. I dont really see a world where the contract is deliberately fragmented and then the contractors have to fix it. Thats too late.
In terms of future technology, are people asking you to come up with proposals for grid computing?
Were looking for the technology game changers. Grid computing is the one to watch. We have been doing some bench testing of our large, complex software suite and looking [at] how it runs in our environment. In our early tests, were getting as much as an 80 percent cost reduction in hardware. This may signal a fundamental shift in the value chain.