How Booz Allen Hamilton Swallowed Washington
From its origins as a management consulting firm, Booz Allen has quietly grown into a government-wide contracting behemoth, fed by ballooning post-Sept. 11 intelligence budgets and Washington’s increasing reliance on outsourcing. With 24,500 employees and 99% of its revenues from the federal government, its growth in the last decade has been stunning (and until very recently with little to no knowledge from the main street that it even exists).
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In 1940, a year before the attack on Pearl Harbor, the U.S. Navy began to think about what a war with Germany would look like. The admirals worried in particular about the Kriegsmarine’s fleet of U-boats, which were preying on Allied shipping and proving impossible to find, much less sink. Stymied, Secretary of the Navy Frank Knox turned to Booz, Fry, Allen & Hamilton, a consulting firm in Chicago whose best-known clients were Goodyear Tire & Rubber (GT) and Montgomery Ward.
The firm had effectively invented management consulting, deploying whiz kids from top schools as analysts and acumen-for-hire to corporate clients. Working with the Navy’s own planners, Booz consultants developed a special sensor system that could track the U-boats’ brief-burst radio communications and helped design an attack strategy around it. With its aid, the Allies by war’s end had sunk or crippled most of the German submarine fleet.
That project was the start of a long collaboration. As the Cold War set in, intensified, thawed, and was supplanted by global terrorism in the minds of national security strategists, the firm, now called Booz Allen Hamilton (BAH), focused more and more on government work. In 2008 it split off its less lucrative commercial consulting arm - under the name Booz & Co. - and became a pure government contractor, publicly traded and majority-owned by private equity firm Carlyle Group (CG).
In the fiscal year ended in March 2013, Booz Allen Hamilton reported $5.76 billion in revenue, 99 percent of which came from government contracts, and $219 million in net income. Almost a quarter of its revenue - $1.3 billion - was from major U.S. intelligence agencies. Along with competitors such as Science Applications International Corp. (SAIC), CACI, and BAE Systems (BAESY), the McLean (Va.)-based firm is a prime beneficiary of an explosion in government spending on intelligence contractors over the past decade. About 70 percent of the 2013 U.S. intelligence budget is contracted out, according to a Bloomberg Industries analysis; the Office of the Director of National Intelligence (ODNI) says almost a fifth of intelligence personnel work in the private sector.
It’s safe to say that most Americans, if they’d heard of Booz Allen at all, had no idea how huge a role it plays in the U.S. intelligence infrastructure. They do now.