EYE ON THE STATES

Turning Point in the E-Gov Market

Thomas Davies

Now and then an award is made that signifies a major shift in the competitive landscape of the state and local market. This happened recently when California awarded a $25 million, five-year contract to National Information Consortium Inc., the pioneer e-gov portal company. This award is noteworthy for more than just its size. It represents a turning point in the state and local e-gov market and a harbinger of things to come.

By any measure, a contract this large is a significant victory for a company the size of NIC, whose total 2000 revenue was $27 million. The deal with the California secretary of state's office for a comprehensive information management and document filing system is the largest software and services contract in the company's relatively short tenure. NIC beat out tough competition from Oracle Corp., PricewaterhouseCoopers and Microsoft Corp.

NIC is once again breaking new ground, becoming the first e-gov company to successfully transform itself into an e-gov solutions company delivering end-to-end solutions to government business problems. This is quite a leap for a dot-gov company riding the wave of Internet technology.

NIC would probably argue it was never a pure dot-gov player in the tradition of many Internet companies that got their start in the past few years. It was founded 10 years ago before the Internet explosion. From its beginning, the company has focused on solving a major business problem of government: providing timely, convenient and cost-effective access to government records and transactions.

Identifying, designing, building, implementing and providing ongoing support for end-to-end solutions in state and local government is the high ground most companies want to occupy. It's no surprise as to why: This is where the high-margin business is going to be over the next few years. The slowdown in spending by the states for commodity IT products is leading companies to take steps to better position themselves to compete for more attractive solutions opportunities.

The competitive landscape for solutions in state and local government is wide open. There are only a few areas, such as health care, where the entrenched incumbents have a strong history of providing solutions, as well as an established base of customers. Most other areas of state and local government that can benefit from Internet-enabled, end-to-end solutions have yet to be mined.

The award to NIC does demonstrate, however, that the solutions companies that traditionally dominate this market ? companies such as Accenture Ltd., Affiliated Computer Services Inc., Electronic Data Systems Corp., IBM Corp. and Unisys Corp. ? cannot rest on their laurels. And it lends credibility to the claims of companies such as Hewlett-Packard Co. and Compaq Computer Corp., both of which enjoy strong, well-deserved reputations in this market, that it's not too late to compete for solutions business in this new era.

The award should assure those who are worried about the slowdown in IT spending in state and local government. It demonstrates that while some customers may now be reluctant to spend money on the latest technology, they are willing to invest in solutions that will improve the performance of government services, especially those that directly impact economic commerce and the quality of life in their states, cities or counties.

A key ingredient to successfully compete for e-gov solutions business is expertise in the business functions of the government program targeted for improvement. There is no substitute for having first-hand experience in operating the business processes you're claiming you will improve. A good number of contract awards will turn on judgments customers will make about which company really has best-in-class functional expertise.

Another very important ingredient is which company has the capabilities to develop and implement comprehensive end-to-end solutions that will deliver predictable performance improvements. As the award in California shows, the customer is often not only buying leading-edge technology, but also future improvements in the performance of their programs.

The banking and legal industry in California is counting on the secretary of state to deliver the enhanced service levels needed to file and process more than 1.5 million documents and certificates annually. Training, work-flow improvement, project management and support services are all part of the mix. And e-gov solutions companies don't have to own all the capabilities. Partnering, such as NIC has done with Unisys and Deloitte Consulting, can be equally as effective.

The big integrators and large consulting companies have years of experience managing highly complex projects with acceptable levels of profitability and customer satisfaction. This also is an important ingredient. They've developed deep capabilities through repeated customer engagements.

And yet, even with their impressive resources, it's not unheard of for these companies to stumble during delivery. This will be the proving ground for the e-gov companies like NIC who aspire to be solutions providers.

The first stage of the dot-gov era in state and local is history. Companies that got their start over the past five years, with the goal of bringing Internet technologies to state and local governments, are now transforming themselves. Some of the best may find themselves morphing into e-gov solutions.

Thomas Davies is senior vice president at Current Analysis, Sterling, Va. His e-mail address is tdavies@currentanalysis.com.

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