Prime Contractors Attack New Markets
A focus on vertical segments has helped some federal prime contractors find revenues in the state and local market
P> It's hard to imagine giant systems integrator Computer Sciences Corp. faltering. But when it came to the state and local market, one of today's hottest niches, it did.
The El Segundo, Calif.-based company thought about making its mark in the state and local market more than a decade ago. Then the company lost California's lucrative Medicaid contract to longtime rival Electronic Data Systems Corp. in the early 1980s. Since then, CSC has been so quiet about state and local business that many people thought CSC had bowed out.
Although the loss was an almost fatal blow to CSC's state and local efforts, the company's interest in that area rebounded during the 1990s. In 1993 and 1994, CSC won awards for sales tax systems and environmental cleanup and monitoring systems.
Still, the company's experiences illustrate the perils and profits that state and local opportunities offer. Without a clear focus, an understanding of the market and a financial commitment, it's hard to find success.
The market is wide open for companies regardless of whether they have previously focused on the commercial or federal market. The profit margins and contract life cycle are closer to commercial business than federal business. However, the way the contracts are bid and executed is similar to the federal system. And people willing to compete in this type of specialized arena are limited.
The Good Old Boy Network
One of the toughest challenges in the state market is to crack the "good old boy network" of vendors and contracting officers, said Jack Littley, vice president of corporate development for BTG Inc., Vienna, Va.
State and local business makes up less than 10 percent of the company's current base, but Littley hopes it will expand between 20 and 30 percent within the next five years.
To be successful in the state and local arena, a local presence helps infiltrate that old boys network. But it's not just a matter of getting to know a different person in each state. The state and local market is fragmented into vertical niches, and the people in one niche, such as health and human services, do not necessarily know the people in another niche, such as law enforcement.
A local presence can also open doors. Take CACI International Inc., based in Arlington, Va. The company's Public Sector Division deals almost exclusively in the transportation niche. It provides services to help set up everything from license and registration systems to intelligent highway systems. But when officials in Montgomery County, Md., about 20 miles away, set up a system to track false home burglar alarms and fine the owners, they turned to CACI.
Two other Maryland counties, Howard and Prince George's, are now interested in finding out more about the false alarm system, said Gay Porter, director of Advanced Applications and Executive Information Systems for CACI. The company now has a new service to market nationwide. In 1995, CACI's state and local revenue was $10 million; total revenue was $235 million.
Perhaps even more important than a local presence is the ability to stick it out for the long haul. "You can't get a quick kill. You need to develop relationships over time with states," said Bill Loller, an analyst with G2 Research, a Mountain View, Calif., market research and consulting company specializing in state and local markets.
A typical mistake companies make when entering the state and local market is that they don't make enough up-front investment, said Mark Filteau, president of DynCorp's Information and Engineering Technology division in Fairfax, Va.
Other common problems that can slow success in the state and local market are a lack of internal management support and dedication to the market, said Michele Walsh-Grishm, vice president of G2.
The companies that are successful in the state and local market are those that know what they can do best and go after specific segments of the market, said Milford Sprecher, Federal Sources' vice president of state and local services.
BDM of McLean, Va., anticipates that its state division, which targets welfare systems, could grow up to 60 percent in the next year. The company also expects its local division, which is part of BDM Federal and focuses on the K-12 education market, to grow 33 percent in 1996. Combined revenues from state and local groups were $51 million in 1995.
Andersen Consulting's state and local efforts have grown 25 percent each year for the last several years and are projected to do so in 1996. Andersen's state and local revenue was $140 million in 1995, a tiny portion of the company's $4.22 billion total revenues. Target markets include human services, revenue and taxation, justice and public safety, and treasury and resource management.
PRC's Public Sector subsidiary has spent the last 32 years becoming a leader in the public safety and law enforcement arena. The company would not release revenue numbers, but it did offer a reason behind its success. If a contract is not a good fit, PRC won't bid on it, said Tom Halverstadt, president of PRC's Public Sector Inc. Although a seemingly simple strategy, it can be a tough one to put into practice. A company must understand its capabilities and target areas that best suit those skills.