ACROSS THE DIGITAL NATION

The news is everywhere: economic slowdown, lowered earnings announcements, company layoffs, etc. This has led to a sense of urgency in the vendor community to identify and capture new opportunities. State and local government vendors are looking for how to maximize limited resources and to know where the next opportunity may lie. In this market environment, these vendors may be served the most by an old refrain: location, location, location. There are several criteria that may be used to assess the best areas for new information technology opportunities: Regarding market segmentation strategy, the state and local government market is highly decentralized across the nation. Potential customers are spread across 50 state governments, 3,200 counties and 19,000 cities. The market is comprised literally of thousands of agencies.To most effectively address this marketplace, vendors must develop robust segmentation strategies to best allocate resources and target opportunities. The chart on illustrates a traditional state and local government segmentation strategy, with each tier representing a portion of the market based on the population of government jurisdictions. Tier 1, for example, includes the largest 30 states, 10 counties and 10 cities. Population correlates highly with IT spending as well as other characteristics, such as the scope of IT requirements and complexity of business processes.It also may be wise for vendors to distill this segmentation strategy one step further. The chart also illustrates a key subsegmentation approach within the tier 1 category. These segments enable vendors to allocate resources most effectively as well as develop optimal strategies for the downstream organizations. For example, vendors may elect to target only tier 1 organizations because they represent a significant percent of the total IT spending, or focus on tier 4 organizations through an application service provider offering, rather than traditional integration services. If vendors understood their addressable markets by tier or subsegment, they would be better equipped to make tough choices about resourcing and opportunity development.When it comes to state revenue growth, the recent U.S. economic expansion was a godsend for the state and local government marketplace. Clearly, the economic boom provided historic levels of growth. Over the past six years, government coffers overflowed as revenue far outpaced spending. Significant changes in welfare program administration also added to these coffers, and state governments allocated part of this overflow to unprecedented tax cuts across the nation as well.As the economy has slowed, however, many states have had to revise once rosy revenue projections. The above chart provides a snapshot of how states are meeting their revenue targets, with 19 states falling below forecasts. The National Conference of State Legislatures estimates that 11 states ? for example, Alabama, Delaware, North Carolina and Virginia ? will undergo budget cuts this year because of revenue shortfalls. In other cases, some states ? Colorado, Oklahoma, Mississippi and Washington, for example ? are tapping emergency funds to help balance the difference. A state's fiscal health will have a direct impact on IT initiatives. Although complex funding cycles delay the impact of economic conditions on technology implementation over the short term, this will have an effect as states begin to take a wait-and-see approach or push certain types of technology development, such as hardware acquisition, further out.When it comes to executive leadership, electronic government really has highlighted the importance of senior political and agency leadership in championing major IT projects. These leaders can be effective in galvanizing diverse stakeholders, building consensus among different buying centers and allocating necessary funds.Over the past two years, a number of executive leaders have brought state resources to focus on new technology development. For example, political and agency officials in Washington, Maryland and Virginia, as well as local jurisdictions in Boston, Chicago and Memphis, Tenn., have brought new energies to IT development.State and local government vendors should identify the next wave of major technology initiatives and senior leadership that will champion these programs. Already, there have been a couple of major programs launched in this marketplace. Georgia's outsourcing initiative and California's e-government programs point to two significant areas of information technology spending. As state and local government vendors search for the next opportunity, they may prepare themselves most by analyzing where the best market segments, fiscal health and executive leadership overlap. This can provide a gauge for vendors to assess business development initiatives, target new marketing messages and strengthen relationships with key government officials. More importantly, this intersection may provide vendors with a more realistic picture of potential revenue opportunities and staffing requirements. XXXSPLITXXX-XXXSPLITXXX-