Our Government customers used to award on a "best value" paradigm in which they were often willing to pay a little more for superior products and services. IS&GS prospered in that environment and was able to provide its employees with better than average pay/benefits as a means of retaining a superior workforce. After decades of Government waste and mismanagement that buried the country in $18 trillion of debt, that best value paradigm has changed, and nearly all contracts (especially services contracts) are now awarded to technically adequate, lowest price offers. In an effort to be competitive in this cost shootout environment, IS&GS has had to bid 3-5% profit margins and hope that we win enough (and perform well enough when we win) to remain viable. As we continue to lose bids based on price, our direct labor hours decrease which, in turn, increases our overhead rates. We're in a graveyard spiral that we can't get out of. So Management now faces limited choices: 1) continue the same course and watch our sales and profit margins continue to decline as other companies undercut our prices, 2) further reduce employee pay/benefits and overhead to the bare bones and live with 3% margins in hopes of competing with the hundreds of other companies who are also trying to survive, or 3) get out of the "services" business and focus on the other LM core businesses that traditionally have higher profit margins. Management is responsible for maximizing shareholder value, not ensuring that employees have the best pay and benefits. That's the reality of the situation, and it's likely to be ugly for the employees. Unfortunately, this is probably the new normal.
3 replies (most recent on top)
LM needs to diverge from the government nonsense where they can. LM needs to protect their proprietary services and charge the government as much as they can. For the government, they would love to nickel and dime you until you're almost starved and then give it to another company who might be even be more hungrier. There is no need for this, except that it falls in to the political games the politicians are playing here, like the sequestration game. Wait until the next administration and there will be a windfall of funds for the military.
The problems that LM IS&GS is now facing was a long time coming. Most smart folks in the inside knew that this will happen but they let the party run for as long as it could. The way LM IS&GS business ran and made money was unsustainable in light of a shrinking and hyper competitive market with less and less large size contracts to go around. Additionally, LM needs to figure out of it is an IT company or a company that builds hardware platforms for defense and non-defense markets. It is very difficult to be both and be really good at it at the same time. LM IS&GS has to compete against smaller, agile, and more specialized companies, and the large integrator model that it banked on for all this time is no longer that attractive to the new price conscious customers and government..
So why did lm try and create a diverse revenue stream in the first place, because they knew government defense spending would decline over time, especially with trillions in debt.
Granted the sikorky deal is probably a good fit, most I. T. Service companies return good profit margins.
To me it looks like a ceo who is inexperienced outside of lm's core business and doesn't have the experience to manage in other fields, as the other poster said this is a case of letting accountants reduce costs and it will continue bau style.