Across the digital nation: How to traverse the changing vendor landscape

As demand for specific technologies and services goes through its inevitable cycle, vendors with the appropriate skill sets will rise, while other vendors will fall. Vendors that once dominated key areas will face internal problems that let a crop of new vendors gain market share. With this in mind, I have outlined three of the emerging competitive issues reshaping the state and local market today.

First, the state and local marketplace is littered with failed attempts by federal government vendors trying to move downstream. In many respects, the principles required for success in the federal market inhibit the growth of new business within state and local government. Many federal integrators view government as an extension of their federal business rather than responding to major differences between the two markets.

But in the past three years, several federally oriented vendors have surfaced quietly and found success in the state and local market. These vendors have used their strengths across several outsourcing-related functions to capture contracts in seat management, network and telecommunications management and data center management. 

Given the emergence of homeland security, a number of federal integrators also have leveraged their domain expertise in command and control to compete for emergency operations center business as well as demonstrate skills in related areas such as biometrics, smart cards, wireless and security. Vendors in this category include Northrop Grumman Corp., Computer Sciences Corp., Science Applications International Corp., and L-3 Communications Corp. 

Second, mergers and acquisitions among the major enterprise resource planning vendors have created a new picture. The mergers of PeopleSoft Inc. and JD Edwards and Co., and then PeopleSoft and Oracle Corp. have narrowed the list of ERP players and created competitive pressure among the remaining vendors, such as CGI-AMS (itself a result of an acquisition), SAP AG and Lawson Software Inc.

In many respects, ERP vendors must be vigilant in protecting their client base while looking for new customers to increase their market share. These vendors have longed wished to move beyond core ERP applications and deeper into agency specific functionality. 

However, the success of these firms in key solution areas, such as integrated tax systems and case management systems, is yet to be decided. And there should be more competitive pressures as the ERP companies face local-government-oriented software firms, such as Tyler Technologies Inc., SunGard Data Systems Inc. and Hansen Information Technologies
Inc.

Third, the proliferation of recent and upcoming Medicaid business process outsourcing initiatives underscores the new rush for modernizing Medicaid management information systems and expanding Medicaid-related work, such as fiscal agent and pharmacy benefits management, before federal funds get tighter. 

The competitive landscape in this area has changed significantly. EDS Corp.'s prominence in this space has been eroded by new wins by ACS. There also are increasing competitive overtures by Unisys Corp., Accenture Ltd., Perot Systems Corp. and Maximus Inc.

Similarly, there are other promising areas of business process outsourcing development, including agency-specific opportunities such as health and human services and transportation, as well as emerging sectors, such as human resources, travel, and logistics. Newer vendors are entering this space, while the entrenched competition continues to assess on which segments and services to focus.

Given the growth in government IT spending over the next five years and the changing competitive landscape, vendors that are able to differentiate themselves early in the process will be best positioned for new opportunities. 

Rishi Sood is research vice president with Gartner Dataquest in Mountain View, Calif. His e-mail address is
rishi.sood@gartner.com.