Eye on the States

States Take Some Cues From Fortune 200

Thomas R. Davies

By Thomas R. Davies

When it comes to information technology spending, buyers from state governments and large corporations have a lot more in common than one might think. On average, states spend about 2 percent to 3 percent of their operating budgets on information technology. Service-based commercial businesses, such as health care and insurance companies, spend about the same.

Indeed, state governments are comparable in size and complexity to many of the largest corporations in the United States. California, New York and Texas would easily be included among the top 12 commercial enterprises in the nation based on their revenue. Even meager revenue earners such as North Dakota and Wyoming have operating budgets in excess of a billion dollars.

The growing similarities between the two were evident at the Third Annual CIO Outlook Conference Nov. 19 in New York City. At the event, hosted by Morgan Stanley Dean Witter, chief information officers spoke to a gathering of more than 300 Wall Street analysts and their counterparts from across the country.

The Fortune 200 companies are routinely outsourcing commodity-type services such as help desk services, network services, desktop support and contract programming. This parallels very closely one of the latest trends in state government, with Pennsylvania and Michigan outsourcing the operation of day-to-day IT services.

Like the commercial sector, states also are focusing on expanding broadband access over the Internet. They are building new networks, upgrading existing ones and consolidating data and voice networks as they strive to put in place a computing capability that supports enterprisewide connectivity.

States and commercial enterprises all aspire to bandwidth on demand ? and are turning to external service providers for support. Projects in Virginia and Tennessee are good examples of this state government trend.

And a critical concern for buyers in both markets is satisfying growing customer expectations. Both commercial enterprises and state governments are moving to 24-by-7 operations, driven by customer demands to deliver services electronically over the Internet. Significant investments are being made in customer service technologies such as call centers.

States and commercial enterprises also have similar needs for highly skilled personnel. And they both share a deep need for experienced project managers that have business, management and technical knowledge.

While highly skilled technical personnel can often be obtained through service contracts, the number of new IT initiatives in both markets is constrained by the absence of good project managers.

This is particularly true when it comes to enterprise resource planning systems. Large organizations in both markets are making unprecedented investments in these technologies. While spurred on by the need to ensure systems are year 2000 compliant, they also offer the promise of truly revolutionizing the way these enterprises operate.

Despite the growing similarities between the two markets, there are still significant differences. Foremost are differences in purchasing practices. While some states are experimenting with commercial-like practices, such as shared-benefits contracts and strategic partnerships, these are still the exception and not the rule.

Also, Fortune 200 companies typically are more willing to press the technology envelope. This is evident by their investments in areas such as adaptive learning systems, knowledge management technologies, artificial intelligence software, telephony over the Internet and integrated voice, video and data applications at the desktop.

While the technology adoption lag that historically separates the commercial and state government markets still exists, it is shrinking. State governments are no longer routinely two or three years behind the commercial market in the adoption of the latest technologies.

One implication of the growing similarity between the commercial and state markets is that winning companies in the commercial market can take their successes and leverage them into the state government market. Today, they are finding buyers who want to know more about commercial successes.

Thomas Davies is senior vice president of Federal Sources Inc. in McLean, Va. David DeBrandt provided research for this article.

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