Engility President and Chief Executive Officer Tony Smeraglinolo was the ACG’s guest of honor at last month’s meeting, where he took some time to discuss the factors that led to the creation of Engility and the company’s success in today’s difficult economic environment. During his remarks, he also noted Engility has recently celebrated its one-year anniversary.
Mr. Smeraglinolo began the presentation, entitled “The Anatomy of a Spin,” by pointing out that companies divest for a number of reasons, including the reality that profits may be down or that the overall addressable market is forecasted to shrink. Both of these circumstances applied to the government services businesses that L-3 Communications would eventually spin off to form Engility.
But what exactly led to the spin-off?
“I came back to L-3 from Dyncorp in 2011 to be part of the team that was trying to determine how L-3 could address growing their services business,” said Smeraglinolo, who was part of L-3 Services Group before moving over to Dyncorp, and therefore was familiar with the business and had helped grow the original portfolio.
Working with colleagues at L-3 Communications, the team set out to identify the factors inhibiting the companies’ success. They found that the main inhibitor was an Organizational Conflict of Interest (OCI) that created the need to choose between being an advisor or provider to the government. Ultimately they concluded that there was no way to mitigate this OCI and that divestiture seemed like the best option.
Leading up to spin-off in July 2012, Smeraglinolo and the new leadership team he was developing for the new company knew that divestitures are a lengthy process, and can be disruptive to the business. Both employees and customers could feel a sense that change was coming while the companies that would spin off were pursuing and executing on Federal contracts. “It’s like flying a plane while trying to build a new plane, which is really difficult,” said Smeraglinolo.
“What we created was a pure play service company”, continued Smeraglinolo. “In reality, there are two parts to services, the solutions side, and the service play.” Both start with the government having a problem, according to the Engility CEO. The solutions side applies when the government doesn’t have an answer to its problem due to a lack of product, knowledge or manpower. The pure service play part comes into action when the government has a known solution, and then looks for the best and most affordable option to carry out the implementation.
In order to compete in the service sector and address today’s government budget realities, Engility streamlined organizations, centralized functions and removed what it saw as non-value-added work. More than 40 percent of the company’s indirect headcount was eliminated and infrastructure costs were reduced 26 percent.
Smeraglinolo made several references to starting Engility with a “clean sheet” approach, building a new company that had far less bureaucracy, overlap and would emerge with one Engility culture, versus the many that existed within the legacy companies. He said Engility’s leadership team wanted to recognize and promote the company’s core values, which are:
“Every decision we made was customer focused; we wanted to bring value to the customer, the ultimate stakeholder.” In 2013, the spin-off was complete and the resulting company went to market as Engility; a combination of six different original entities. It was predicted that it would take around 12-18 months to make it to market, but Smeraglinolo knew that wasn’t an option. “We wanted to make it to market in 2013, and we did it in four-and-one-half months.”
As far as where Engility stands today, Smeraglinolo believes that the strategy is working.
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