Thornton: Whole Lot of Projects Going On

Thornton: Whole Lot of Projects Going On

Outsourcing, Electronic Commerce Lead IBM Efforts

By Nick Wakeman
Staff Writer

Kenneth Thornton
Government demand for electronic commerce and outsourcing may be no match for its commercial counterpart, but don't tell IBM Corp.'s Kenneth Thornton that the public sector market is slow.

"Slow is a relative term," said Thornton, who as general manager of IBM's Global Government Industry oversees the sale of products, services and solutions into the government market worldwide. "The public sector just doesn't move at the same pace, but there are a lot of projects going on."

Projects on the horizon that IBM wants to be a part of include outsourcing all of Connecticut's information technology functions, winning the second phase of a U.S. Postal Service project to modernize and network point-of-sale systems, and winning a spot on the team that will modernize the Internal Revenue Service's information technology systems.

Personnel-related concerns stemming from government adoption of e-commerce and outsourcing and the funding approval process for such efforts make government customers distinct from their commercial brethren. In some cases, political leaders lack a full understanding of the benefits of technology, he said.

With networking and computer technology getting cheaper, the pace with which governments embrace outsourcing and e-commerce will accelerate, but there still is a need for strong political leadership, said Thornton. He cited Connecticut's Gov. John Rowland, who has been a driving force behind the state's effort to outsource its IT functions.

Another priority for the Bethesda, Md.-based IBM unit is to execute contracts already under its belt, Thornton said. These include 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.

While Thornton declined to break out revenue figures for his unit, industry sources estimated that it pulled in about $1.2 billion from the federal government in 1997. Overall IBM revenues were $78.5 billion in 1997.

Thornton said his unit has a decidedly international flavor. International governments bring in 65 percent of revenues; the remainder comes from the U.S. federal government, and state and local governments.

Electronic government is a core capability that IBM Global Government Industry tries to push in all of its markets, Thornton said. "Anybody servicing the government has to view this as a major business opportunity," he said.

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, he said.

"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 will 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 grow 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."

A 1997 report by the market research firm Input of Vienna, Va., said the growth of electronic commerce in the federal market has lagged the private sector. The market is expected to grow from $243 million in 1997 to $309 million in 2002.

Citizens' expectations and demands for electronic government services will grow, especially as households connected to the Internet grow from 23 percent today to 59 percent in 2002, Thornton said.

It should not be surprising that state and local markets are hotter than the federal government, because most citizen interaction with the government is through state and local agencies, he said.

Outsourcing is a potentially big growth market for IBM, but company officials are still looking for a major icebreaker-type project, he said. Connecticut, which is expected to award a contract in the next two months to outsource all of 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. "Their highest growth has been coming from services," he said.

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

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

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