Krone: Leidos reorganization has 'reenergized' defense and intelligence groups

By Marjorie Censer  / April 10, 2019

The reorganization Leidos unveiled at the beginning of the year separated the company's defense and intelligence groups, reenergizing both units and giving both better customer focus, according to the contractor's chief executive.

In an interview with Inside Defense earlier this month at Leidos' Reston, VA, headquarters, Roger Krone said the company reevaluated its structure, which had initially been set following Leidos' merger with Lockheed Martin's IT services business.

"The defense and intel businesses -- we felt we had people that were either defense or intel. . . . The 'and' part wasn't working," he said. "I honestly felt we weren't addressing the needs of the customer well in either place."

Krone said the merger had sought to integrate and reduce costs. But once the organizations are in place, "you kind of watch it operate."

As part of the reorganization, Leidos established four business groups -- civil, defense, health and intelligence -- and tapped Gerry Fasano, a former Lockheed executive who had managed Leidos' business development and strategy, to lead the new defense group. Vicki Schmanske, also a former Lockheed executive, was named head of the intelligence unit.

Additionally, the company opted to turn a business unit known as the Advanced Solutions Group into a technology incubator lab.

Though the group had existed for more than two years, Krone said, "it was interesting that some of our advanced systems never graduated out of the Advanced Systems Group," pointing to the Sea Hunter program as an example.

"Because we gave them group status, I think there was a little bit of, 'If I'm bigger, I'm better,' as opposed to, 'I'm here to serve the corporation,'" Krone told Inside Defense.

Leidos wanted technology that had matured to go to customer-facing business units, he added.

"They were slow to go," Krone said. "So it gave us a chance to say, no, we really want the incubator to be an across-the-company competitive weapon that takes our [independent research and development], goes and wins contract research and development from the [Pentagon's science and technology] organizations . . . and uses it to develop technology . . . up into the higher [technology readiness levels]."

Leidos redefined the organization and now calls it the Leidos Innovation Center, or the LInC.

In 2018, the company spent $46 million -- or 0.5% of total sales -- on independent research and development. That figure totaled $42 million in 2017 and $44 million in 2016.

Krone said he wants the company's innovation center to be a "competitive differentiator."

"I'm not sure every business needs an incubator," he said. But "we still want to differentiate ourselves through technology and innovation."

Krone also said he's urging the defense group to take more risks and "lean a little bit further forward looking at some of the emerging markets."

"The National Defense Strategy couldn't be more clear about where the department is going," he said. "We've got to spend more in investment, we've got to take more risk."

"As much fun as it is to just bid the same old, same old, if we're not careful, five years from now we'll find out that those businesses are just gone. They don't exist anymore," Krone continued. "And the businesses that do exist are the things that [Under Secretary of Defense for Research and Engineering] Mike [Griffin] has talked about: cyber, [electronic warfare], hypersonics, [artificial intelligence/machine learning]."

Krone noted Leidos has long had a group working on hypersonic aerodynamic modeling.

"We have been barely able to keep that group funded," he said. "And now there's a lot of excitement and a lot of energy behind getting the predictive codes for hypersonic flight right."

Krone also addressed recent comments made by Leidos' chief financial officer about the contractor's interest in potentially buying a more products-focused company. Krone told Inside Defense Leidos already makes some products -- such as small form-factor electronics and communications equipment -- and is thinking along those lines.

"We tend to build hardware where it complements a mission," he said. "More and more, we find that to be successful we need a combination of hardware, software, firmware and systems integration, and we're concerned that some of the best hardware technology might be denied us in the second tier as people go into competitive posture."

But he dismissed speculation the company might make a significant pivot.

"We're not going to buy a shipyard, we're not going to buy a tank manufacturer, we're not going to build jeeps, we're not going to bid on [the Joint Light Tactical Vehicle]," Krone said. "That's not us."

"We're looking for depth," he continued. "There's a whole set of government customers that we don't do business with today, and there's some technologies and capabilities that we don't have."

However, he said an acquisition would not rival in size the company's merger with Lockheed's group, though Krone said he thinks consolidation in the industry will continue.

"I think we are more in the middle than at the end of consolidation in our space," Krone said.