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Earlier this week I wrote about Science Applications International Corp.’s fourth quarter results and how analysts questioned SAIC execs about whether the company was large enough to pursue enterprise IT modernization contracts.
CEO Nazzic Keene pushed back on that idea as I reported but the whole thing has nagged at me ever since.
I’m of a couple minds on the question of scale. Is it possible that a $7.4 billion a year company is too small? The question floors me in many ways.
I want to put SAIC to the side because the question has me thinking about the market as a whole and not a specific company.
While you can argue that it’s a ridiculous question to ask of a company that large, the question also says something about the evolution of the market.
It wasn’t that long when the prevailing wisdom was that $1 billion was the goal. That’s when a company had enough scale, but we’ve long blown past that.
In last year’s Top 100, Leidos clocked in at the No. 1 spot with $9.2 billion in prime contracts. All the companies in the top 10 had more than $4 billion.
Is $4 billion the new table stakes to be considered a large government contractor? One capable of taking on any program the government throws its way?
If that’s true, how do we describe the mid-tier? I have a hard time thinking of a company with $3 billion in revenue as middle tier.
Perhaps there are more than three tiers in the market now. There might be six:
I’m sure some will argue that size doesn’t matter. It’s all about capabilities, they’ll say. But size still drives distinctions between these groups of companies. Sometimes those distinctions work to the smaller company’s advantage, sometimes the larger company has the advantage.
Several factors are driving the biggest to continue getting bigger. Most of the top companies are publicly traded so they have Wall Street expectations to meet.
But technology also has changed, particularly the advent of the cloud which has brought a plethora of capabilities. The evolution of technology has enabled customers to buy with a more enterprise view. There is a desire to tap into the economies of scale that the cloud enables. Hence, we see larger contracts, particularly when it comes to IT management and infrastructure.
This is the reality of the market. Size matters. So I don’t think SAIC will be the last company to field questions about whether they are big enough to compete.
NEXT STORY: Polaris RFP sparks small business fears
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