Across the Digital Nation: State and local slowdown is a beginning, not an ending

Rishi Sood

The state and local government marketplace has been in a dramatic state of flux over the past year. With budget shortfalls forecast in 46 states and a lack of defined movement in homeland security funding, new technology opportunities have leveled off. In many respects, forced cutbacks have exacerbated the problem in specific jurisdictions and created an uneven balance of technology investment vs. technology deployment.

New research with state and local government agencies suggests several e-government initiatives have been put on hold and planned projects have been delayed to next fiscal year. Similarly, new hardware or software upgrades have been postponed indefinitely.

In many cases, the only projects with a green light are focused on revenue generation or cost management services.

Vendors should take a two-pronged strategy to mitigate the slowing opportunity pipeline.

First, vendors must focus on premier clients ? their core customer base. This will enable them to strengthen relationships with key decision-makers, capture existing opportunities within these accounts and be well-positioned for the next wave of technology development. By focusing on the core customer base, vendors will solidify the trusted adviser role and provide the most efficient use of resources.

Second, vendors should examine how opportunities and new technology strategies taking shape within their federal government business units may be leveraged in the state and local government marketplace. Vendors must look to piggyback on the new federal activity to help augment the future focus on state and local.

Already, some key business process issues that will affect future technology development are being raised within the federal context. Such items include the national ID card, management of public infrastructure, welfare and job integration services, first responders and bioterrorism issues.

Given the expected rapid growth in federal technology spending, vendors should try to capture some of the newer initiatives within federal agencies that may directly impact future technology development at the state and local level. Leadership positions within the departments of Justice and Health and Human Services and the new Homeland Security Department, to name a few, should translate into opportunities downstream.

This consolidation of federal and state and local government business units into one public-sector group is a key strategy to drive overall revenue growth as well as parlay shared expertise across both market segments. The ability of vendors to capitalize on the crossover will be essential in growing the public-sector organization and weathering the slowdown in the state and local segment.

Over the long run, however, the federal and state and local government markets must be treated separately. The fundamental principals of sales organization, contract development, revenue growth, projected margins and opportunity replication differ by market segment. Moreover, the business process expertise required can differ significantly across the two levels of government.

Creating public-sector business units can be an effective mechanism to alleviate rapid changes in market dynamics, but it doesn't resolve the unique market characteristics of federal and state and local agencies. The state and local government marketplace will eventually bounce back. With homeland security funding expected and a continued economic rebound, greater technology investments could come during the second half of 2003 and through 2004.

Rishi Sood is a principal analyst with Gartner Dataquest in Mountain View, Calif. His e-mail address is rishi.sood@gartner.com.

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