| BUSINESSWEEK ONLINE : JUNE 21, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| COVER STORY
At SAIC, Owners and Workers See Eye to Eye How the largest U.S. private info-tech outfit reaps the benefits of employee ownership Thirty years ago, physicist J. Robert Beyster mortgaged his house and set up shop in tiny offices next door to a ballet studio in La Jolla, Calif. Beyster and a dozen fellow scientists were struggling to land Federal contracts in their specialty--nuclear power and nuclear weapons. Then, inspiration struck. What better way to reward his team than to give away stock in the company to the researchers who brought in business. By the end of the first year, Beyster's stake in his company was down to 10%, but survival was no longer an issue. Today, the 74-year-old founder and CEO owns a scant 1.4% of what is now Science Applications International Corp. Virtually all of the company's 36,000 employees own a piece as well, and more than 25,000 of them hold their shares directly, outside the retirement and profit-sharing programs that invest in the company. That makes SAIC--with $4.7 billion in revenues and $151 million in net income, up 78% for the year that ended Jan. 31--the country's largest employee-owned info-tech concern. It also topped BUSINESS WEEK's list of the leading privately held technology companies. And SAIC has grown far beyond its roots. Just five years ago, nearly 90% of its revenues stemmed from U.S. government programs. Now, more than half comes from the commercial sector. It has built substantial businesses selling plant management and automation software and services to major oil companies and utilities, and health-care automation systems to customers such as Kaiser-Permanente, the country's largest HMO. But its biggest single step into the commercial world came in late 1997 with SAIC's acquisition of Bell Communications Research (Bellcore), a 1984 Bell Labs spin-off owned by the regional Bell operating companies. Last year, the company, renamed Telcordia Technologies Inc., raked in $1.2 billion. Now, the once captive supplier to the Bell system gets almost half of its revenue from companies other than its previous owner, thanks to deals with the likes of Sprint. ''It has completely diversified its revenue base,'' says analyst William D. Rabin of investment bank J.P. Morgan & Co. ''SAIC's acquisition of Bellcore was a brilliant move.'' Employee ownership has changed the culture at Telcordia. After the takeover, SAIC extended its stock programs to the new employees, including options and bonus awards and the ability to buy stock directly from other employees or the company. ''People are taking a more proprietary interest in the performance of the company,'' says Casimir Skrzypczak, who heads consulting services at Telcordia. Beyster knows that stock ownership gives employees a sense of proprietorship that helps get things done. ''We use equity to focus staff on where we want to grow,'' he says. SAIC is one of the few employee-owned companies whose stock is liquid. In 1973, Beyster set up Bull Inc., a wholly owned subsidiary and a registered broker-dealer to provide a market where employees could buy and sell SAIC stock. The price is set once a quarter based on the recommendation of an independent appraiser, and employees can buy and sell on four trading days each year. The company encourages employees to own shares: When first-time buyers write a check for 25 shares, they get options for 50 more as a bonus. And as the stock, which last traded at 72 3/8, has soared, so have buyers. Just two years ago, SAIC saw 3,000 buyers a year. Now, the number is quadruple that. SAIC's big push into commercial markets has paid off for staffers. After years of a 15% to 20% compound growth rate, it has seen annual returns of 37.5% over the past five years and 53% in the four quarters through April. In part, that's due to an Internet play: Beyster acquired Network Solutions Inc., which administers domain names on the Internet (the .com, .net, and .org names). Beyster bought it for $5 million in 1995, took it public in 1997, and earlier this year grossed $730 million when it sold 4.5 million shares. Beyster says he would never take SAIC public. The company doesn't need the capital, and employees already have a way to value their shares. Besides, he bristles at Wall Street's emphasis on quarterly earnings. ''If an appraiser can value the subsidiary, then we can reward people commensurate with the value they create,'' he says. ''With NSI, we couldn't value it, so we let the market do it.'' So, look for SAIC to grow as it always has, acquiring niche players to bolster its skills in specific areas and setting up joint ventures with overseas giants to get their business. With a cash hoard now exceeding $1 billion, SAIC won't rule out another big acquisition or two, Beyster says, especially with companies looking to shed or outsource their IT operations. ''These acquisitions are always a little scary,'' he says. But not nearly as much when the employees pitch in to make them work. After all, they're the ones--and not Wall Street--looking over his shoulder. By Larry Armstrong in Los Angeles _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
 RELATED ITEMS At SAIC, Owners and Workers See Eye to Eye CHART: The Quiet Juggernaut TABLE: The Leading Private Info-Tech Companies INTERACT E-Mail to Business Week Online | |||
