In North America, SERCO employs over 8,000 staff, serving Federal, state and local governments, along with the Canadian government and commercial customers. The company’s client base spans all the major branches of the U.S. Department of Defense, including the Navy, Army, Air Force, Marine Corps, Coast Guard, Defense Logistics Agency, and Combatant Commands, as well as the Intelligence Community. In Canada, Serco supports the Canadian Department of National Defence, including the Royal Canadian Navy and Royal Canadian Air Force.
DSJ had an opportunity to put questions to Tom Watson, Serco’s Senior Vice President of Defense Services, about the company’s focus, its recent integration of Alion’s Naval Systems Business Unit (NSBU) and its outlook for the future.
DSJ: How are things going for SERCO in the U.S. defense market?
Watson: Overall things are going well. Last year we had organic growth of 20% in our defense business and also closed the acquisition of Alion Naval Systems Business Unit (NSBU). Our focus in 2020 has been on the integration of that business and capitalizing on growth synergies in our pipeline with proposals that leverage our strengths and core capabilities. We continue to see growth this year in some of our defense segments such as acquisition & program management, ship modernization, base modernization and facilities management and personnel readiness.
DSJ: Has / how has COVID-19 impacted SERCO’s operations in North America and beyond?
Watson: Serco’s North America market has faced some challenges but for the most part we are getting through it well. The vast majority of Serco employees are in mission-essential roles, so they have remained hard at work, with many remaining on the front-lines since the beginning of this pandemic. We are incredibly proud of their continued focus on the mission and supporting their customers. As to be expected, we unfortunately had some furloughs on a small number of programs but we are happy to report the majority of these people are now back to work. In the North American market we have experienced some program schedule delays as well as some procurement and award delays but nothing of a material nature. Beyond North America we have experienced an uptick in business, specifically increased activity in UK and Australia related to COVID-19 testing centers and contact tracing programs.
DSJ: With a year-and-a-half passed, speak to the business impact on SERCO of the Alion Science Naval Systems Business Unit (NSBU) acquisition? It is what SERCO expected?
Watson: It is exactly what we had expected, and we remain absolutely thrilled with this acquisition and the positive impact it has had on our capabilities and customer access within the Navy. The strategic rationale for doing this deal was to create a complete end-to-end life-cycle service offering for our Naval business as well as expand our depth in key acquisition commands and nationally important programs. This acquisition has done just that – moving Serco up the value chain and bringing stronger, synergistic capabilities to our existing programs and new pursuits.
DSJ: What has been the most positive/surprising result of your work to fold-in NSBU personnel and plant?
Watson: It was the cultural fit. Culture is incredibly important to us and we knew this team would fit well within Serco. We experienced a very high retention rate of NSBU personnel and outstanding engagement between legacy Serco and NSBU personnel. The fit works because our people are all highly motivated and mission focused on making their customers successful. Also, there were minimal overlaps in our business so we found it was an almost perfect complementary fit.
DSJ: What have been the greatest challenges in merging the two companies/contracts/cultures, if any?
Watson: There were no real challenges. We successfully put a lot of effort into specific training on tools, processes and methods used in the Serco business to flatten the execution learning curve for our leaders and managers. As you can imagine, there were differences in business processes which necessitated accelerating learning and implementation.
DSJ: It was reported that SERCO intended to keep on the NSBU personnel and not seek cuts in rationalizing the merger. Did this bear out or did COVID-19 change that?
Watson: We are proud to say there were no job reductions as a result of this acquisition. The functional staff that was brought over has been folded in with our existing teams as well as key leaders from Alion have been included into our executive management team. The acquisition actually caused us to invest in more staff, for example in business development, to better pursue our increased pipeline of opportunities.
DSJ: At the time of the merger, SERCO stated that the NSBU acquisition would be particularly impactful with regard to Canadian market access. Has this been the case? How is SERCO better (and not just bigger) in Canada because of the lash-up?
Watson: Serco now has an established and proven maritime business in Canada. Serco is providing naval architecture, marine engineering, and ship design for the Canadian government and commercial customers as a result of the acquisition. Our maritime team in Canada is also collaborating with Serco divisions around the world to deliver diverse capabilities to provide extensive marine services in the U.S., United Kingdom, Canada, Australia, and New Zealand.
DSJ: What specific defense programs in the U.S. and internationally are SERCO’s highest priorities for capture or retention today and why?
Watson: As a result of our NSBU acquisition, we have substantially increased our pipeline of opportunities, so you will see high priority placed on expansion of our Navy portfolio. Additionally, an important part of our strategy was to further diversify our portfolio into Army and Air Force programs. From our recent wins, we have had good success in this area and will remain a priority for us.
DSJ: What can industry watchers expect from SERCO? Are more acquisitions, or perhaps divestments, being considered and talked about?
Watson: Our priority remains steady, sustainable organic growth. Serco is always looking at our portfolio and will consider acquisitions that enhance our capabilities and or further expand customer access.