Arthur D. Little, Inc. Business Information, Profile, and History

Company Perspectives:

Arthur D. Little helps global companies, governments, and emerging ventures with their most pressing business challenges. From more than 40 offices and laboratories in 31 countries, we use business innovation to help our clients set strategy, shape organizational culture, and develop cutting-edge products and technologies. Working with Arthur D. Little, our clients get the performance improvements and breakthrough results that increase top-line growth and bottom-line results. Founded in 1886 by Arthur Dehon Little, we are the world's first consulting firm. Today we are one of the world's premier consulting firms.

History of Arthur D. Little, Inc.

Arthur D. Little, Inc., based in Cambridge, Massachusetts, is one of the oldest consulting firms in the world. The company specializes in science and technology, offering product development, management consulting, and scientific research services, to corporations and governments worldwide. Arthur D. Little also provides environmental, health, and safety consulting, and its Arthur D. Little Enterprises, Inc., subsidiary commercializes products developed within the company. The firm also oversees a graduate school of management designed to train business executives. Arthur D. Little's international operations grew significantly in the 1990s, and the company has offices and laboratories in more than 30 countries.

Innovative Beginnings: Late 1800s-1940s

Chemists Arthur D. Little and Roger Griffin established Griffin & Little, Chemical Engineers, in Boston in 1886. The venture was a bit of a risk, as chemists and chemistry were viewed rather negatively, but the pair believed there was a market for their consulting services. Hoping to enhance products and processes, Griffin & Little initially became known for its knowledge in papermaking. The firm was able to elevate papermaking from an art to a practical technology, and in 1893 it published The Chemistry of Papermaking, a reference work. That same year, however, Griffin was killed in a laboratory accident.

Little kept the business going, and in 1900 the firm patented the first acetate fiber, also known as 'artificial silk.' The company also worked with cellulose, which eventually led to the creation of nonflammable motion picture film. Also in 1900 Little found a new business partner, William Walker, The firm changed its name to Little & Walker, but Walker remained with the company only five years, leaving to join the faculty at the Massachusetts Institute of Technology (MIT). In 1909 the firm incorporated as Arthur D. Little, Inc. (ADL).

With a goal of offering technological applications to help industry growth, ADL and its corps of leading scientists and researchers worked with a number of companies and organizations. In 1911, for instance, ADL worked with General Motors to set up the automobile company's first research and development laboratory. The firm's other notable clients in the early 1900s included Great Southern Lumber, for which ADL studied the profitability of processing the lumber company's waste products, and Canadian Pacific Railway.

Accomplishments during the 1920s and 1930s were plentiful and noteworthy. In 1921 the firm succeeded in using a bucket of sows' ears to make a silk purse. This revolutionary achievement later became part of the Smithsonian Institute's collection. ADL was involved in the development of an odor classification system, the first of its kind, designed to help in the creation of such products as food, wine, and cosmetics. The firm filed a patent for producing blown glass fibers in 1930; the process paved the way for the creation of Fiberglass. In 1936 ADL was able to make a product that converted sea water into fresh water. Known as the Kleinschmidt vapor compression still, the converter used little fuel and was used extensively by the U.S. Navy during World War II.

Though founder Arthur D. Little died in 1935, his legacy did not, and the firm continued to make progress in the 1940s. ADL worked on 'Operation Bootstrap,' a technical-economic plan for the industrialization of Puerto Rico, worked with MIT on the production of a low-pressure system to liquefy helium, and came up with an iron blast furnace operation that successfully boosted the production of iron while decreasing consumption of fuel. The system was embraced by the steel industry.

Continued Growth Amid Changes: 1950s-60s

ADL faced some changes in the 1950s, the first involving a change in ownership. By the early 1950s MIT owned 55 percent of ADL, a fact that did not sit well with Royal Little, nephew of the founder. Little thus established the Memorial Drive Trust, a profit-sharing trust for the employees of the firm, in 1953. Little purchased MIT's 55 percent and transferred the shares into the Memorial Drive Trust, hoping to ensure ADL's continued independence.

In terms of business, the company ushered in the 1950s with projects with such large clients as Johnson & Johnson and General Electric. ADL became involved with operations research, the analysis of business operations, and applied the concept to industrial problems. ADL also established Arthur D. Little Enterprises to commercialize in-house inventions and innovations. During the following decade the firm developed the concept of maquiladoras--foreign-owned factories in Mexico where imported materials were assembled by low-wage employees into exportable merchandise&mdashø enhance trade along the U.S.-Mexican border. ADL's laboratories conducted tests of chemical agents to investigate chemotherapy methods for the National Cancer Institute and in the late 1960s patented a process for producing synthetic penicillin. The company worked with computer firm IBM to develop SABRE, a computerized airline ticket reservation system, for American Airlines. In 1964 ADL began a management education program to train managers from developing nations. The program later came to be called the Arthur D. Little School of Management. ADL placed 30 percent of its shares up for public offering in 1969.

Struggles and Changing Times: 1970s-80s

The 1970s and 1980s brought difficult times to ADL. The firm was no longer the only consulting firm specializing in technology but did little to battle competition. Economic conditions across the globe were less than favorable and affected ADL's revenues and growth as well. The firm failed to modernize as its rivals moved into the higher demand fields of business reengineering and management consulting. By the mid-1980s the company's reputation had declined considerably, and ADL's growth was rather dismal--its competitors were growing at about twice the pace, and ADL's profits had changed little in a decade. In addition, many of ADL's mainstays, such as product testing and government contracts, were declining.

Hoping to inject new life into the fifth-largest consulting firm in the United States, CEO John F. Magee hired Charles R. LaMantia as president and chief operating officer in 1986. LaMantia, a former ADL executive, appeared to have his work cut out for him. James H. Kennedy, editor of the trade publication Consultant's News, commented on ADL's tired image in Business Week, noting, 'In the old days you practically genuflected when you heard their name. ... Now they're not in the mainstream of consulting.' Magee, who had headed ADL since 1974, attempted to resurrect the flailing firm by cutting back unprofitable services and putting more energy into such competitive arenas as biotechnology, health care, and information services, but many observers felt the efforts were minimal. One consultant told Business Week, 'Intellectually, John [Magee] understands the company's problems ... but he's reluctant to come to terms with them.' Another issue plaguing ADL was low morale within the company, caused in some part by perpetually low salaries. Also, because salaries were tied to the firm's performance, employees were making even less than their typically low pay in the 1980s. ADL lost many of its prized employees because of uncompetitive salary packages.

In 1987 ADL was forced to confront a major obstacle when it received a takeover offer from Plenum Publishing Co., a small publishing firm that specialized in marketing English translations of scientific journals from Russia. The company also published scientific books and journals on subjects ranging from metallurgy to physics. Based in New York, Plenum was significantly smaller in size--less than one-sixth--than ADL, but the publishing house was much more profitable; in 1986 Plenum reported earnings of $12.2 million on sales of $38.1 million. Plenum hoped to diversify into consulting and believed ADL, with its scientific bent, would be a good fit. Plenum chairman Martin E. Tash explained to the Boston Globe, 'They produce information; we publish it. ... We understand their clients, who are the same as ours, government agencies, research institutions, and industrial companies around the globe.'

ADL's board chose to reject Plenum's offer of $128 million, indicating that it believed ADL would fare better as an independent entity. Soon thereafter, Plenum put forth another offer of about $140 million and made it known the amount was negotiable. Plenum's Tash was confident that his offer would be accepted, believing that majority shareholder Memorial Drive Trust would take measures to increase the stock's value. Indeed, Tash's offer of about $55 per share was considerably higher than the stock's trading value, which hovered in the mid-30s range prior to Tash's first takeover attempt. ADL's sagging financial performance further indicated that something needed to be done at the firm. An article in New England Business pointed out that despite rising revenues in the 1980s, net income as a percentage of revenue dropped from about five percent in the late 1970s to about half that in the mid-1980s. James Kennedy of Consultant's News noted that while successful consulting firms aimed for profits of 40 percent prior to taxes, ADL poked along at two percent. Additionally, ADL's utilization rate, which measured billable hours, was about 60 percent, compared to the industry's target average of 80 percent. And with the specialization and consolidation of the consulting industry, many observers felt ADL's diversity was a burden. 'Their greatest strength is also one of their greatest weaknesses,' Kennedy told New England Business, adding 'They know about so many industries and subjects. Their breadth is a great strength, yet the trend in consulting is toward specialties and multispecialties ... toward the boutique instead of the supermarket, and they are a sprawling supermarket.'

ADL contended that it had already implemented strategies to streamline operations and fuel profitability. Management structure had been changed, and net income in the fourth quarter of 1986 rose 66 percent compared to the same period in 1985. ADL's LaMantia told New England Business, 'The place is really on the move. ... Morale is up, performance is up.' ADL demonstrated its self-confidence in 1988 when the Memorial Drive Trust bought back the 30 percent of ADL not owned by the employee trust. Paying $57 a share, the move made ADL a private entity.

Despite the upheavals ADL confronted, the firm continued to make progress in its consulting services. In the 1980s ADL provided technical assistance to the U.S. Postal Service, helping the agency upgrade equipment and systems. The firm also assisted the U.S. Air Force with the production of cryogenic refrigeration systems to be used in space. ADL was involved with studying safety implications of the Eurotunnel, cleaning up the Alaskan oil spill caused by the Exxon Valdez, and conducted an extensive travel plan survey with American Express Travel Related Services.

Strengthening Operations in the 1990s

Magee gave up his position as CEO in July 1988 but retained chairmanship of ADL. LaMantia stepped in as CEO, and the newly private firm began its journey toward, ADL hoped, profitability and success. The firm began by divesting its noncore businesses, which included Opinion Research Corp., a market research business, and ADL's preclinical pharmaceutical product registration and development business and its industrial and agrochemical registration business. The two divisions were purchased by Biodevelopment Laboratories, Inc., a newly formed company owned in part by two ADL veterans. The spin-offs allowed ADL to concentrate on three core businesses: management consulting; environmental, health, and safety management; and technology and product development.

During the first half of the decade, ADL sought to expand its international presence and to growth through strategic acquisitions. In 1995 the firm purchased The Joyce Institute, an ergonomics consulting agency, and marked its entry into the fast-growing ergonomics field. The Joyce Institute's operations were merged with ADL's environmental, health, and safety consulting division. Also in 1995 ADL acquired Innovation Associates, a training and consulting firm specializing in organizational learning and change, and partnered with Robert Levering, a widely recognized workplace expert. The alliance planned to offer consulting services focused on change management in the workplace.

ADL worked on a number of projects in the early 1990s, many beyond the U.S. border. In 1992 the firm studied the hazards of the transportation and handling of petrochemicals and liquid petroleum gas for Petroleos Mexicanos SA. ADL also researched the use of natural gas for power generation in Asia and conducted an assessment of the need for a second airport for the Massachusetts Aeronautics Commission. The following year, in 1993, ADL won a contract to study the effects of pollution on ocean life and was awarded an environmental contract from the U.S. Army's Chemical Biological Defense Agency. In 1994 ADL began working with Ford Motor Company on the development of hybrid propulsion systems and worked on the privatization of Argentine-owned oil company YPF. Consulting on the privatization of British Rail was on ADL's agenda in 1995, as was training environmental consultants in the former Soviet Union and some countries in central and eastern Europe.

Heading into the latter half of the 1990s, ADL continued to focus on international expansion. The firm announced that it hoped to strengthen its consultancy operations in the Asia Pacific region and was aiming for a growth rate of more than 40 percent. ADL planned to open additional offices, in Thailand and Indonesia, to add to its offices in Malaysia, Singapore, and major metropolitan cities in the region. By the late 1990s ADL's Asia Pacific operations were performing strongly, and revenues in South Asia alone increased 400 percent between 1996 and 1997. ADL reported a growth rate of 33 percent in Asia in 1997.

The firm restructured its management consulting operations in the mid~1990s, and as a result ADL's U.S. financial services activities were shut down. ADL's School of Management formed a partnership with Boston College's Carroll School of Management in 1996, giving ADL's school access to Boston College's educational facilities. In the fall of 1997 the School of Management became an independent entity, no longer functioning as a wholly owned subsidiary of ADL. ADL served as the not-for-profit school's only shareholder. Also in 1997 ADL acquired PRC Aviation and formed a consulting subsidiary, called R. Dixon Speas Associates, focused on the aviation industry. Other strategic acquisitions in the late 1990s included Contactica, a telecommunications consultancy firm with operations all over the world, and the Mountain View Technology Division of ARCADIS Geraghty Miller, which offered transportation technology, energy systems, and environmental services. In 2000 ADL merged its Epyx fuel cell subsidiary with De Nora Fuel Cells, a subsidiary of Italian company De Nora. The new company was called Nuvera Fuel Cells and focused on the production of fuel cell systems, particularly for the transportation industry. Also in 2000 the firm made plans to take its technology-based businesses, which included telecommunications, media and electronics, and information technology, public. ADL hoped to raise about $150 million in the initial public offering of the newly formed company, called C~Quential Inc.

Though ADL enjoyed happier times in the 1990s than it had during previous decades, the firm continued to face some difficulties. High turnover in the position of North American managing director and conflict between North American and European offices placed ADL on unstable ground. ADL maintained that operations and profits were improving, and that the company was dedicated to furthering growth. CEO LaMantia, who became chairman in 1998, retired in 1999, and ADL brought in two outsiders to run the firm: Lorenzo C. Lamadrid, a veteran of the high-tech industry, was named CEO and president, and Gerhard Schulmeyer became chairman. Within his first month at the helm, Lamadrid cut back staff and restructured North American operations into four business units: strategy consulting, public sector work, environmental health and safety, and technology and product development.

The firm reported sales of $629 million in 1999, with more than 60 percent of revenues coming from outside the nation. Though growth was rather slow--about three percent compared to competitors' growth rates in the double digits--ADL planned to reverse the trend. The firm's new CEO believed ADL was poised to tackle the technology industry by forming strategic alliances with partners to commercialize and market ADL's ideas. "ADL has been developing leading-edge products for decades and has not integrated that particularly well into the global business environment or into the business-creation mode of doing business," Lamadrid told Business Times during a trip to Asia. Rather than spinning off the manufacturing of inventions, Lamadrid believed ADL would profit greatly from involving itself in the production process. Indeed, with an unmatched heritage, more than a century of experience, and a history of providing breakthrough innovations, ADL appeared certain to overcome any obstacles.

Principal Subsidiaries: Arthur D. Little Enterprises, Inc.; Arthur D. Little School of Management; Cambridge Consultants Limited; Contactica; Innovation Associates; Nuvera Fuel Cells (Italy).

Principal Competitors: Andersen Consulting; Booz, Allen Hamilton Inc.; McKinsey Company; The Boston Consulting Group.

Chronology

• Key Dates:

• 1886: Chemists Arthur D. Little and Roger Griffin found Griffin & Little, Chemical Engineers.
• 1909: Company incorporates as Arthur D. Little, Inc.
• 1935: Founder Little dies.
• 1953: The Memorial Drive Trust, an employee trust, is established.
• 1964: Arthur D. Little offers a management education program.
• 1969: Thirty percent of the company goes public.
• 1988: Company becomes private when the Memorial Drive Trust buys back the outstanding 30 percent.
• 1996: Arthur D. Little School of Management forms partnership with Boston College's Carroll School of Management.