IBM Corp. Pushes E-Government Button

IBM Corp. Pushes E-Government Button

By Nick Wakeman
Staff Writer

Government demand for electronic commerce and outsourcing might not match today's corporate requirements, but IBM Corp. is counting on growth in both areas to buttress its public sector revenues in the coming years.

Electronic government is a core capability that IBM Global Government Industry tries to push in all of its markets, Kenneth Thornton, general manager of IBM's Global Government Industry, told Washington Technology.

"Anybody servicing the government has to view this as a major business opportunity," said Thornton, who oversees the sale of products, services and solutions into the government market worldwide.

U.S. citizens' expectations and demands for electronic government services are certain to grow as households connected to the Internet swell from 23 percent today to 59 percent in 2002, he said in an interview last week.

Thornton declined to break out revenue figures for the Bethesda, Md.-based IBM unit, but sources estimated that roughly $1.2 billion of Big Blue's overall revenues of $78.5 billion came from the federal government in 1997. International governments bring in 65 percent of the revenues for Thornton's unit; the remainder comes from the U.S. federal government and state and local governments.

Armonk, N.Y.-based IBM has completed projects in Washington state and Arizona where citizens can access a variety of services via kiosks (in Washington) or through the Internet (in Arizona).

The company also is working on a project for the U.S. Bureau of Public Debt so that federal agency can sell savings bonds via the Internet.

"But government, by and large, is still a face-to-face service model," he said. As governments globally move away from that model, more opportunities are going to open up, Thornton said.

Domestically, that is happening with state and local governments, said Lesley Kao, an analyst with G2R Inc. of Mountain View, Calif. The market research firm estimates the market for electronic government services will leap from about $660 million in 1998 to $5 billion in 2003.

"The whole push is about getting better service to the citizen," Kao said. "Citizens want government services to be like commercial services."

But concerns about government personnel reductions stemming from e-commerce and outsourcing initiatives and the process of approving funding for such efforts set government customers apart from their commercial brethren, Thornton said.

In some cases, political leaders lack a full understanding of the benefits of today's technology, he said.

As networking and computer technology prices drop, the pace with which governments embrace outsourcing and e-commerce will accelerate, said Thornton.

However, he stressed that strong political leadership is necessary for such change to happen and cited Connecticut's Gov. John Rowland, who has been a driving force behind his state's effort to outsource its IT functions.

Winning a key role in outsourcing all of Connecticut's information technology functions just happens to be one of the things on Thornton's agenda.

Other goals are winning the second phase of a U.S. Postal Service project to modernize and network point-of-sale systems and getting a role on the team that will modernize the Internal Revenue Service's information technology systems.

Another priority is to execute potentially big-ticket contracts already under the company's belt, Thornton said.

Among these are the recently awarded General Services Administration Seat Management contract, the Defense Digital Imaging Network contract and the Defense Medical Information Management Systems Integration, Design, Development, Operations and Maintenance II contract. All are multibillion-dollar opportunities where IBM is competing against other contractors to win task orders.

Outsourcing is another potentially big growth market for IBM, but company officials are still looking for a major icebreaker-type project, he said.

Connecticut, which should make a contract award soon to outsource its IT functions, could be that catalyst, Thornton said. IBM is competing against Computer Sciences Corp. of El Segundo, Calif., and Electronic Data Systems Corp. of Plano, Texas, for that project, estimated to be worth $1.4 billion.

The push among states to outsource is evident as more states try to run their operations like a business, Kao said. And outsourcing allows agencies to focus on their missions while leaving the IT worries to someone else, she said.

More large projects like Connecticut's are being discussed, but state officials nationwide "want a success story," she said. "If Connecticut works, others will follow."

G2R estimates the state and local outsourcing market should swell from about $940 million in 1997 to $2.3 billion in 2002.

Overall, Thornton said his division is concentrating on key markets, including public safety and justice, finance, administration and revenue management, social services, postal services and defense.

"We try to pick segments that are appealing to central governments, regional governments and local governments, and then invest in those areas," he said.

IBM has been developing capabilities in network-related systems, such as electronic government, as well as supply chain management, electronic billing and payment systems, business intelligence and document management.

"Those are good areas to go after," said William Gorman, an analyst with PNC Institutional Investment Services in Philadelphia. IBM overall has been doing a good job of pushing its services capabilities, he said, and that is where there highest growth has been.

Of the company's $78.5 billion in revenues during 1997, $19.3 billion were from services. Services grew by about 20 percent, a pace that is expected to continue, Gorman said.

IBM Global Government Industry
General Manager: Kenneth Thornton
Based: Bethesda, Md.
Employees: 1,200 working in 120 countries
Web site:

Key Contracts
n General Services Administration Seat Management
n Defense Digital Imaging Network
n Defense Medical Information Management Systems Integration, Design,Development, Operations and Maintenance II

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