Booz Allen & Hamilton Inc. History

Company History:

Booz Allen & Hamilton Inc., a pioneer in the development of the consulting industry, is recognized as an international management and technology consulting firm offering business strategy, operations, technology, and systems consulting services through more than 50 offices worldwide. Involved in such areas as environmental services, computer systems, space research, transportation, weapons technology, human resources, telecommunications systems, health care, and management, the firm has two major businesses: the Worldwide Commercial Business provides management consulting services to major corporations, and the Worldwide Technology Business provides technology consulting and systems development services primarily to government clients, but also to some commercial clients.

Booz Allen & Hamilton traces its roots to Edwin G. Booz. A student at Chicago's Northwestern University in the early 1900s, Booz received a bachelor's degree in economics and a master's degree in psychology, upon completion of his thesis 'Mental Tests for Vocational Fitness.' In 1914, Booz established a small consulting firm in Chicago, and, two years later, he and two partners formed the Business Research and Development Company, which conducted studies and performed investigational work for commercial and trade organizations. This service, which Booz labeled as the first of its kind in the Midwest, soon attracted such clients as Goodyear Tire & Rubber Company, Chicago's Union Stockyards and Transit Company, and the Canadian & Pacific Railroad.

During World War I, Booz was drafted as a private but moved quickly through the ranks by performing personnel work and helping the Army reorganize its bureaus' business methods. Booz left the service in March 1919 as a major in the Inspector General's Office and returned to Chicago to start a new firm, Edwin G. Booz, Business Engineering Service. One of Booz's first clients after the war was Sewell Avery of the State Bank & Trust Company of Evanston, Illinois, who helped Booz get a loan for his new venture. In return, Booz conducted a bank survey for Avery.

During the early 1920s, Booz's client list grew to include Harris Trust and Savings Bank in Chicago, the Walgreen Company, and Booz's alma mater, Northwestern University. In 1924, Booz changed the name of his firm to Business Surveys, to more accurately reflect his firm's focus: business surveys and subsequent analysis and recommendations. Unlike other early 'efficiency-engineering' consulting firms, Booz adopted a personnel-oriented, applied-psychology approach that included interviewing employees as part of the process of studying the organizational structures of companies.

In 1925, Booz hired his first permanent, full-time assistant, George Fry, another Northwestern alumnus. That year, Business Surveys began working for U.S. Gypsum Company (then under the direction of Sewell Avery), which remained a staple client throughout the decade. Other Business Surveys clients during the latter half of the 1920s included the Chicago Tribune, Hart Schaffner & Marx, The Chicago Association of Commerce, Eversharp, Inc., Stock Yards National Bank, and Chicago Daily News publisher Walter Strong, who agreed on Booz's recommendation to build a newspaper office across the river from the Civic Opera House.

In 1929, Booz moved his own office into the new Chicago Daily News Building and hired a third consultant, James L. Allen, who had just graduated from Northwestern. By 1931, Avery was back on Business Surveys' client list, this time as chairperson of Montgomery Ward, which was losing sales to the new retail operations of Sears, Roebuck and Company. Booz took an office just down the hall from Avery, where he worked full-time and pioneered the 'multi-vector' executive appraisal method, which used cross-checking independent criteria in evaluating and hiring managers.

By 1936, Booz had helped push Montgomery Ward back in the black. Informing the company that Avery had been its central problem, Booz resigned from the assignment and returned to his firm's office, where Allen had recently resigned and Booz Surveys itself was in need of organization. By February of that year, Booz had persuaded Allen to return and had hired another consultant, Carl Hamilton. The firm then became a partnership and adopted a new name: Booz, Fry, Allen & Hamilton. The following year, the firm moved into the new Field Building in Chicago, where it would remain for the next 44 years before relocating its headquarters to New York City and taking more modern space for its Chicago operations.

By the late 1930s, the firm's marketing brochure was promising 'independence that enables us to say plainly from the outside what cannot always be said safely from within.' The firm was also providing executive recruiting services for its clients, which during the late 1930s included the Chicago Title and Trust Company, the University of Chicago, General Mills, and the Washington Post. During this period, Booz personally conducted the first-ever study of a nationwide institution, the American National Red Cross, which propelled the firm into institutional consulting.

Booz, Fry, Allen & Hamilton entered the 1940s with a significant midwestern client base and a newly established New York branch office. In 1940, the firm expanded into military consulting, when U.S. Navy Secretary Frank Knox, former publisher of the Chicago Daily News, hired the company to assess the Navy's preparedness for a major war and to evaluate the Navy's shipyards, telephone systems, and intelligence operations.

After the United States entered the war, the firm continued to work for the Navy, as well as for the Army and the War Production Board. By 1942, a growing percentage of the firm's billings came from government and military assignments. The firm's increasing interest in work for the government, which Fry denounced as the wrong market for a consulting service, led to friction with Booz and in the midst of the feud a frustrated Allen again left the firm. Fry resigned from the partnership in December 1942 to start his own consulting business, and Allen returned early the following year to a renamed partnership--Booz Allen & Hamilton, where he was asked to help mold the firm's organizational structure and chair a newly established executive committee.

By war's end, Booz Allen had nearly 400 clients throughout the country being served by offices in Chicago, New York, and a new Los Angeles location. In 1946, Hamilton died, and, the following year, Booz retired, leaving Allen as chairperson of the firm's governing board. The firm's early postwar work included assignments for S.C. Johnson (known as Johnson Wax) and Radio Corporation of America (RCA), whose chairperson, General David Sarnoff, initially hired Booz Allen to do an organizational survey of RCA. During the late 1940s, Booz Allen also worked for RCA's subsidiary, National Broadcasting Company (NBC), conducting studies of NBC's radio/record division and the young television industry.

Booz Allen's work for the federal government and its military organizations continued in peacetime, and, in 1947, the firm received an Air Force contract to conduct the government's original production management study on guided missiles. Between 1949 and 1955, Booz Allen landed nearly two dozen of these so-called Wright Field assignments, which included a study of Air Force contractors' missile production capabilities.

Booz Allen entered the 1950s as one of only a few management consultant firms in the United States. During the early 1950s, the firm continued to build on its traditional midwestern manufacturing client base, which grew to include Maytag, Parker Pen, Johnson Wax, and Cessna, a small-airplane manufacturer. In 1951, Edwin G. Booz died, leaving behind a pioneering company on the verge of international expansion and diversification.

In 1953, Booz Allen landed its first international contract, an assignment to study and help reorganize land-ownership records for the newly established Philippine government. About the same time, the firm began helping reorganize the government of Egypt's customs operations and a government-owned Egyptian textile manufacturer. By the mid-1950s, Booz Allen had created an international subsidiary and moved into Italy to conduct studies of a nationalized steel company and state-owned oil company.

In 1955, a group of key Booz Allen partners formed Booz Allen Applied Research, Inc. (BAARINC) as a separate corporate entity. Utilizing the Wright Field studies on missile production as a foundation, BAARINC was designed to launch the firm's diversification into the intelligence arena and was formed around a Booz Allen team of guided missile specialists. BAARINC was soon hired by the federal government to help determine where the Soviet Union was manufacturing missiles and to compile a so-called Red Book, which outlined technical problems Soviets experienced in developing weaponry. During the late 1950s, Booz Allen also worked with the National Aeronautics and Space Administration (NASA)--helping to determine the best way to reach the moon--and served on a Navy task force which developed PERT, or the Program Evaluation and Review Technique designed to improve the planning and production of the Polaris submarine missile.

By the close of the decade, Booz Allen was, in the words of a 1959 Time article, 'the world's largest, most prestigious management consultant firm,' having served three-fourths of the country's largest businesses, two-thirds of the federal government's departments, and most types of nonprofit institutions during its first 46 years. During the 1950s, the firm's number of partners grew from 12 to 60, while its total professional staff increased to more than 500, one-third of which were spe-cialists.

In 1962, in order to establish profit sharing and retirement plans for its partners, Booz Allen became a private corporation, and the partnership that had governed the firm legally was dissolved (although the term 'partner' continued to be used). That year, James Allen became the new corporations's chairperson and passed the reigns of active leadership to Charlie Bowen, who was named president. Between 1962 and 1964, BAARINC acquired two subsidiaries, Designers for Industry (renamed Design & Development) and Foster D. Snell Laboratory. Shortly thereafter, BAARINC also became a Booz Allen subsidiary, bringing to the firm a client list that included IBM, Abbott Labs, United Airlines, and the U.S. Department of the Interior.

During this time, Booz Allen's nonfederal government work included a study on the efficiency of the Nassau County, Louisiana, government and a study of the Chicago public school system. In the corporate arena, Booz Allen helped Johnson Wax expand in Europe, aided Deere & Company in a restructuring, and orchestrated the merger of Rockwell Standard and North American Aviation, resulting in formation of North American Rockwell Corp.

Overseas expansion continued as well, with Booz Allen deployed to evaluate a variety of European industries, including British heavy industry and consumer goods manufacturers and West German and Scandinavian steel producers. Booz Allen was also engaged in a series of assignments for the World Bank to help the governments of Brazil, Argentina, and Venezuela develop steel industries. Moreover, Booz Allen was hired by the Algerian government to help it develop an integrated oil operation which could operate in the world marketplace; similar assignments soon followed in Iran, Abu Dhabi, and Saudi Arabia.

During the Vietnam War, Booz Allen conducted studies for Secretary of Defense Robert McNamara, including a series of feasibility studies involving the so-called Supersonic Transport plane. Booz Allen also provided the U.S. military with assessments of communications equipment during the firm's first 'field work' assignment, in which consultants accompanied military patrols in gathering information on the use of American communications equipment by Vietnamese allies.

By 1969, Booz Allen--the largest consulting firm in the United States--had more than 15 major or project offices on five continents, generating annual revenues of $55 million and earnings of $3.5 million. Having experienced explosive growth during the decade, Booz Allen considered going public, launching a brief debate regarding the ethics of public ownership of a business that stressed confidentiality.

The following year, James Allen retired, Bowen was named chairperson and chief executive, and James W. Taylor became president. In January 1970, the firm went public, following the lead of Arthur D. Little, Inc., which had initiated public ownership of large consulting firms a year earlier. The Booz Allen public offering was designed to help the company diversify by giving the firm the ability to acquire specialized companies through stock swaps. Between 1969 and 1972, Booz Allen purchased several small specialty consulting firms. These acquisitions included firms involved in transportation, household chemicals, airport management, real estate, market research, and television advertising testing. The market research, airport, and chemicals operations were later spun off. In 1972, the firm also established a Japanese subsidiary.

During the early 1970s, BAARINC was hired by NASA to assess the ability of a $100 million satellite to orbit the earth for one year. BAARINC predicted the satellite would fail within four days, which it did, building BAARINC's reputation in space systems work and leading to a subsequent assignment to test a redesigned satellite, which met Booz Allen specifications and stayed in orbit for 18 months.

During this time, Booz Allen's government assignments leveled off and then declined, as did commercial work during this 'energy crisis' period when consultants became a discretionary budget item for many companies. As a result, Booz Allen's profit margins suffered, and its stock prices slid, as government billings were cut in half and profits from Europe became nearly nonexistent.

In 1973, with the firm in decline, Taylor was asked to resign and Bowen named James Farley as Taylor's successor. Farley formed a cabinet of advisors comprised of unit business heads, and then expanded that team concept with the establishment of a larger operating council, which included the firm's principal managers. The company then made its officers owners, allowing each officer to buy a certain percent of Booz Allen stock. The firm also stepped up its push into international markets--via such avenues as a new Italian subsidiary--and increased its diversification into specialized markets.

In 1976, after four years of gradually buying back its stock, Booz Allen again became a private company in a final buyout that paid outside shareholders $7.75 a share, considerably less than the $24 per share price Booz Allen's stock debuted at earlier in the decade. Farley was named chairperson and chief executive, and John L. Lesher became president. The retirement of Bowen that year marked the close of a quick turnaround for Booz Allen, which saw its billings rise from $54 million in 1972 to $100 million by the end of 1976.

During the mid and late 1970s, Booz Allen conducted studies of the telecommunications market and the Bell telephone system for AT&T and was engaged in a seven-year assignment for the city of Wichita, Kansas, to help establish a prototype municipal computer information system, which brought the firm national recognition. Booz Allen's expanded work in communications electronics and commercial telecommunications led the firm into new, specialized markets, including communications security, strategic and national command and control systems, and intelligence systems. One result of this increasing technological diversification was a contract to work on the Tri-Service Tactical Communications Program, which involved the coordination of U.S. Army, Navy, and Air Force communications.

In 1978, BAARINC changed its name to Public Management & Technology Center (later becoming known simply as the Technology Center) and refocused its office automation, manufacturing technology, and space systems services, leading to work on the commercialization of space stations. PMTC diversified into new markets--including nuclear survivability, electronic systems engineering, avionics, and software verification and validations--and began offering clients cost containment and flexible pricing options. Key contracts for PMTC during the late 1970s included Navy assignments to help develop the Trident missile and help rebuild Saudi Arabia's navy.

During this time, Booz Allen also helped Chrysler Corporation in its historic turnaround by devising a plan to secure federal loan guarantees for the automaker and then by serving as a troubleshooter after the federal bailout, monitoring the company's performance for the federal loan guarantee board. Booz Allen also helped orchestrate Hong Kong and Shanghai Banking Corporation's acquisition of Marine Midland after providing HSBC with a comprehensive study of the American banking network.

By 1980, Booz Allen's annual revenues had climbed to $180 million, having more than tripled in a decade, and the company was running a close second in U.S. consulting service billings to Arthur Andersen. The Navy remained one of Booz Allen's principal clients during the 1980s, while Warner-Lambert Company also became an important corporate client, helping to launch the firm into health care consulting. Overseas, Booz Allen entered the decade engaged in oil and steel industry work in West Africa, Indonesia, and Nigeria, while also employed in Zambia to help consolidate that country's copper mining industry.

By 1983, recessionary conditions and an oil glut led to a profit slump for Booz Allen. The following year, Farley stepped down from his posts as chairperson and chief executive, returning to client work before becoming president of MONY Financial Services. Before leaving Booz Allen, however, Farley established a firm-wide competition to select his successor in what proved to be, according to a 1988 Forbes article, a divisive and distracting ten-month process. Ultimately, Michael McCullough, president of PMTC since its 1978 reorganization, was chosen to succeed Farley. Under McCullough, PMTC had remained a bright spot in Booz Allen operations as commercial consulting lagged, generating annual billings of more than $100 million by 1984, while developing information systems for such clients as the U.S. Postal Service and the U.S. House of Representatives.

Also in the early 1980s, Booz Allen provided extensive services to AT&T, helping develop a strategic repositioning program for its divestiture of the local Bell operating companies.

During the mid-1980s, Booz Allen's commercial consulting work began to wane, and rival McKinsey & Company became the powerhouse of general management consulting, and Arthur D. Little grew into a leader in technology consulting. Booz Allen relied increasingly on government work. By 1987, government accounts--with the lowest profit margin in the consulting field--represented nearly one-third of Booz Allen's $340 in annual revenues at a time when defense spending was increasingly being targeted for budget cuts.

McCullough responded to Booz Allen's mid-1980s slump by restructuring the firm around industries rather than traditional geographic boundaries and emphasizing a multi-disciplinary approach to business problems, utilizing technical specialists in tandem with management consulting experts. McCullough's approach at the time was relatively untried, with most firms specializing in either management or technology. In 1989, the company launched a major expansion program of its computer systems integration (CSI) services for commercial clients, in an effort to expand its presence in the commercial computer systems and technology market. Booz Allen entered the commercial systems integration field at a time when CSI was the fastest growing segment of the consulting field, and also one of the toughest to crack; Booz Allen had to compete with both computer manufacturers and technology consulting firms.

In 1990, William F. Stasior, a senior executive from Booz Allen's technology business, was named president of the firm. The following year, Stasior assumed the additional duties of chairperson and chief executive, after McCullough returned to consulting as a senior partner, having spearheaded a six-year transition from a regional strategy to one increasingly focused on international operations and technology.

In 1991, Booz Allen acquired the major assets of Advanced Decision Systems Inc., a California-based artificial intelligence company, which became a Booz Allen division. By this time, Booz Allen's multi-disciplinary approach to business problems had become known in the firm as 'Theory P.' Named for its emphasis on integrating people and process, Theory P represented a problemsolving approach concerned less with how departments operated independently and more with how they worked together to produce goods and services. This strategy was adopted by other major companies, including Hewlett-Packard, Corning Glass Works, and Ford Motor Company.

During the early 1990s, Booz Allen also began offering its clients a type of corporate war game that simulated competition among companies and served as a business strategy tool. In 1993, Booz Allen was hired by the U.S. Agency for International Development to devise a strategy to lead a consortium of firms in the privatization of civilian and defense industries in 11 newly independent states of the former Soviet Union.

That year, two reports prepared by Booz Allen took center stage in the Delaware Supreme Court. The first, which Paramount Communications had used to inform their decision on whether to be acquired by Viacom Inc., revealed that Paramount and Viacom together would generate nearly ten times more profit than a Paramount merger with QVC Network Inc., which was also vying to acquire Paramount. In December 1993, the Booz Allen report on possible merger combinations--which included confidential data from Viacom but not QVC--was introduced as evidence in a legal battle between Viacom and QVC over the Paramount acquisition; Paramount sought a reversal of a court decision ruling that it had illegally rejected a QVC offer. Following the Delaware Supreme Court ruling in favor of QVC, Booz Allen prepared a subsequent report with confidential information from QVC, which resulted in the same conclusions as the first study.

As it moved into the mid-1990s, Booz Allen's business was equally split between technology services and systems development and commercial management consulting. While the firm had remained profitable (even in the sluggish 1980s, when its ranking among the top U.S. consulting firms fell from second to sixth or seventh), its percentage of the consulting industry's market in the future appeared to be dependent upon Booz Allen's ongoing merger of high-tech consulting and general management consulting.

Principal Subsidiaries: Booz Allen & Hamilton Health Care Inc; Booz Allen & Hamilton Acquisition Services.

Further Reading:

• Baum, Laurie, 'Is Booz Allen Having a Mid-life Crisis?' Business Week, March 9, 1987, pp. 76-80.
• Berton, Lee, and Paul B. Carroll, 'Booz Allen Plans a Major Expansion in Computer Systems Integration Work,' Wall Street Journal, January 30, 1989, p. C5.
• 'Booz, Allen Tells Rich Inside Story,' Business Week, December 20, 1969, pp. 22-23.
• 'Booz, Allen Tries to Cure Its Own Ills,' Business Week, January 20, 1973, pp. 26-28.
• Bowman, Jim, Booz Allen & Hamilton: Seventy Years of Client Service, New York: Kenner Printing, 1984.
• Coy, Peter, 'Oh, What a Lovely War Game,' Business Week, February 1, 1993, p. 34.
• 'The Instant Executives,' Forbes, November 15, 1967, pp. 27-41.
• Machan, Dyan, 'Gladiators' Ball,' Forbes, December 26, 1988, pp. 130-34.
• 'Management Experts Thrive on Own Advice,' Business Week, April 23, 1960, pp. 104-18.
• 'The New Shape of Management Consulting,' Business Week, May 21, 1979, pp. 98-104.

Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.

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