who's who in state and local systems integrators
Companies Mine State and Local Niches for Gold<@VM>IBM Corp.<@VM>AMS<@VM>Andersen Consulting<@VM>Electronic Data Systems Corp.<@VM>Lockheed Martin Corp.<@VM>Unisys Corp.
By Patrick Seitz
The top government systems integrators have dropped their shotgun approach to pursuing state and local contracts in favor of mining specific market segments, ranging from health care to tax systems, according to industry analysts and executives.
"Companies are no longer trying to be all things to all people," said Thomas Davies, senior vice president for state and local government at Federal Sources Inc., a McLean, Va., research firm.
Integrators are becoming increasingly selective over which information technology contracts they bid on to stay focused in the notoriously fragmented state and local government market, he said.
"Almost all of them have figured out that they need to concentrate on a portion of their customers' business processes," Davies said.
For example, American Management Systems Inc. of Fairfax, Va., is building a reputation for its revenue and tax systems, while Electronic Data Systems Corp. of Plano, Texas, has been successful in enterprisewide outsourcing and health care systems, he said.
Public sector customers are looking for vertical market knowledge and are relying on integrators to bring with them best practices from their other government and commercial projects, Davies said.
Leading the integrator pack is IBM Corp. of Armonk, N.Y., which brings in more than $300 million in annual revenue from its state and local systems integration work, according to a survey by Federal Sources.
Five companies make up the second tier of state and local integrators, each reaping between $150 million and $300 million in yearly sales. They are: American Management Systems; Andersen Consulting, Chicago; EDS; Lockheed Martin Corp., Bethesda, Md.; and Unisys Corp., Blue Bell, Pa.
In the third tier of integrators, with $50 million to $150 million in state and local revenue, are TRW Inc., Cleveland, and Science Applications International Corp., San Diego.
Rounding out the list of integrators with less than $50 million each in annual revenue from state and local business are: CACI International Inc., Arlington, Va.; Computer Sciences Corp. of El Segundo, Calif.; Litton-PRC Inc., McLean, Va.; and Northrop Grumman Corp., Los Angeles.
Lesley Kao, an analyst with G2R Inc., a research firm in Mountain View, Calif., said there is a reason the list of top state and local integrators is dominated by companies like Andersen, EDS, IBM and Unisys.
"For one thing, they have large partner networks, so they can provide a lot of those end-to-end solutions" in areas such as human resources and financial services, she said.
Davies said that although a dozen big integrators dominate the state and local scene, the market is "so diverse and complex that there's lots of room for new companies to bring in new solutions." These companies generally can be categorized by their business focus, such as systems integration, consulting or hardware and software product sales, he said.
The state and local government IT market this year will generate about $46.2 billion in sales, according to Federal Sources. That figure dwarfs federal government IT spending, which was about $25.2 billion in fiscal 1998.
In addition to targeting agency-specific business opportunities, many of the top integrators also look for types of projects that are replicable across agencies, he said. For instance, Lockheed Martin has honed its transaction processing business model with contracts to collect child support and parking fees.
One of the more interesting trends among integrators in recent years has been the swift movement of traditionally federal contractors into the state and local arena, Kao said. The best examples of this trend are CSC, TRW and SAIC, she said.
The biggest state and local spending area continues to be finance and administration systems, analysts said. However, hot growth areas include social services (because of welfare reform initiatives) and public safety and transportation systems.
Kao said one vertical market with "huge potential" is the criminal justice and court segment. "Those agencies have been historically slow to adapt to new technologies and don't have a lot of money unless it's from grants," she said. "But these agencies desperately need IT systems." The key will be making these systems, which can track court cases and criminal suspects through disposition, affordable, she said.
Bob Samson, general manager of IBM Global Government Industry North America, said major growth opportunities in the state and local market are e-business solutions, enterprise resource planning and outsourcing.
E-business solutions provide convenient online services to citizens such as allowing them to renew driver licenses over the Internet. Enterprise resource planning systems help improve the operations of whole agencies for services such as child welfare and public safety. Outsourcing involves the transfer of responsibility for IT operations from government agencies to the private sector.
Louis Matrone, senior vice president of marketing for EDS Government Industry Group, said outsourcing is "clearly on top of the list" of piping-hot markets. The state of Connecticut, for example, is expected to chose a winning bidder to handle the outsourcing of its entire IT infrastructure within the next few weeks, he said.
States also are beginning to examine the pros and cons of using seat management contracts, which have gained popularity lately in the federal government, Davies said.
One area where state and local governments are trail-blazing is in benefits-funded, risk-sharing contracts. In these contracts, integrators are paid based on how much extra money a new system can generate, Davies said.
For IBM Corp., a key to winning state and local government systems integration work is having a local presence.
The Armonk, N.Y.-based information technology colossus has sales and marketing teams in 46 state capitals, said Bob Samson, general manager of IBM Global Government Industry North America. "Our strategy for state and local government starts with our client teams," he said.
That strategy has paid off in a big way. IBM is the No. 1 systems integrator in the state and local government market, hauling in more than $300 million annually from such integration work, according to Federal Sources Inc., a McLean, Va., research firm.
"I think we're unique from the point of having dedicated teams in nearly every state capital and having a commitment to those states because [the team members] live there too," Samson said. "It's one thing to fly in on a Monday morning to meet about a business opportunity and then fly out. It's another thing to actually live there and have a stake in what happens there."
The local client teams are able to draw from IBM's exhaustive portfolio of solutions, products and services to match a government customer's needs, he said. "We have this incredible bunch of capabilities," from PCs and mainframes to Lotus software and integration skills, he said.
Also, by being locally based, the IBM teams are able to bid on smaller IT projects that might not appear on competitors' radar screens, he said.
IBM officials see three major growth opportunities in state and local government: e-business solutions, enterprise resource planning and outsourcing.
E-business solutions provide ways for state and local governments to offer better service to citizens, Samson said. An IBM project in Arizona, called Service Arizona, allows residents to renew their vehicle registrations via the Internet, he said.
An IBM project with the Maryland Department of Labor, Licensing and Regulation lets real estate agents obtain and renew their licenses online, he said. The system is now being expanded to allow other professionals, such as electricians and cosmetologists, to pay for their occupational licenses electronically too.
IBM is working on other e-business solutions with the states of Michigan and Mississippi, Samson said.
Another focus for IBM's state and local efforts is enterprise resource planning, he said. These projects involve departmentwide solutions that improve operations for such government functions as child welfare systems, public safety and tax systems.
IBM contract wins in this area include a child welfare system and a Medicaid fraud and abuse detection system for the state of New York, an enterprise network infrastructure for the Pennsylvania state police, and a tax and revenue administration system for Wisconsin.
The beauty of enterprise resource planning contracts is that they can be replicated from state to state with some tailoring, Samson said.
The mother of all growth opportunities for state and local integrators, however, is IT outsourcing.
"Increasingly states are looking at what their core mission is and are looking to outsource the IT infrastructure and putting their resources into solution areas," Samson said. Upcoming opportunities range from Connecticut's total IT outsourcing package, expected to be awarded by the end of November, to a request for proposals under way to outsource IT functions in San Diego County.
IBM already is working as a subcontractor to Unisys Corp. of Blue Bell, Pa., on an IT outsourcing contract in Pennsylvania.
? Patrick Seitz
American Management Systems views "benefits funded" projects as an important element in its marketing strategy to win new business from state and local governments, according to Mark Andrews, AMS vice president and general manager of state and local government and education.
This unique financing arrangement, in which the contractor is paid with monies generated from the systems it puts into place for the state, is not new to AMS.
The company already is helping several states, including Kansas and California, streamline their tax and revenue agencies through benefits-funded contracts. More recently, AMS won a $123 million contract to design and install an integrated tax system for Virginia.
Under these contracts, the state legislatures do not have to appropriate money to pay AMS for its work. Instead, the benefits generated by the company's re-engineering and software, such as increased tax collections, are set aside to cover the projects' costs.
"I think this is the wave of the future," said Andrews, who noted that when a $23 million California project was completed in June, it already had generated in excess of $60 million in benefits ? more than enough to pay AMS. The state keeps the benefits above the contract cost.
The company is looking to begin benefits-funded projects in other areas besides state tax and revenue programs, he said. "We see this as a competitive advantage we have over other companies. We have several opportunities in the hopper where we can use this type of contract," Andrews said.
AMS, one of Washington Technology's top state and local systems integrators, is heading toward the end of a highly successful year in which revenue for state and local government work has grown nearly 50 percent to a projected $254 million in 1998. Based in Fairfax, Va., AMS is projecting its companywide growth at about 20 percent next year, and Andrews expects its state and local government revenue to grow even faster.
The largest area of work for AMS is in administrative systems. Andrews said the company made its mark designing and building an integrated financial system for New York City with a contract that began in 1976.
"We used this work as the foundation to launch other practices around that area, and have since done similar projects for about 200 state and local governments," he said.
New York City is still the company's largest single administrative project, he said, adding that AMS began a $140 million contract in 1997 to do the next-generation overhaul and upgrade of the financial system it installed 20 years ago.
Andrews cited the company's tax and revenue business area as the fastest growing in the state and local government arena, quickly naming more than 10 states that have contracted with AMS to re-engineer their entire tax systems or portions of those systems. The company has done considerable work in the private sector in compliance and collection, he said, and sees its software and consulting techniques as a natural fit for the public sector.
AMS also has numerous contracts with human service agencies, such as improving child support enforcement systems, and with public safety and transportation agencies.
"We try to use the Internet and other cross-cutting technologies to solve particular problems and streamline processes," Andrews said. "We are a total solution provider."
?Steve LeSueurAndersen Consulting sees increasing opportunities to expand its state and local business by helping schools and universities maintain their computer resources and use them as educational tools.
"A lot of schools have access to computers and other technology, but they lack the infrastructure and support to keep the technology operational," said Martin Cole, managing partner for Andersen's America-State Government Practice. "We are trying to help schools utilize the Internet and train the teachers to incorporate new technologies into their teaching so that [the technologies] become part of the fabric of the classroom."
Andersen's interest in education is consistent with its overall business philosophy, said Cole. Technology cannot be introduced by itself but must be implemented by people who are trained to use the new systems.
"We view technology as an enabling tool for people," he said.
The Chicago-based company is one of the nation's major systems integrators for state and local governments. Andersen traditionally has played a strong role in developing and maintaining systems serving agencies that deal with human services, revenue and compliance, training and resource management, and law enforcement, Cole said.
While Cole declined to give Andersen's state and local revenue, he confirmed as accurate an estimate of revenue ranging from $150 million to $300 million made by Federal Sources Inc., a McLean, Va. research firm.
The company's state and local revenue has been growing in excess of 20 percent annually in recent years, and Cole expects it to grow 20 percent to 30 percent next year.
Andersen's core business includes work like the five-year, $42 million contract awarded in September by the Tennessee Department of Human Services to support, maintain and operate a system that tracks child support payments. Andersen designed and built the system for the state under a 1993 contract.
The company also has a three-year, $70 million contract with Maryland's Department of Human Resources to modify and enhance its child support enforcement system.
"Our strength is in bringing a full range of solutions and services over the life cycle of a system," Cole said.
He sees several opportunities for expanding into education, both at the local level in kindergarten through 12th grade and among universities. Andersen has a pilot program in Fort Worth, Texas, called the Managed Education Network that provides infrastructure and support for computers that are acquired or donated to a school.
One of the problems facing schools is they don't have the capability to upgrade older systems. The pilot program in Fort Worth, for example, is developing software to enable older computers to access the Internet. The program also is helping to train teachers to use the computers and Internet technology in their classrooms.
"We're looking for other school districts where we can introduce this program," Cole said.
Andersen also is developing a new program that can be used for remedial education at the college level. The new program would be based on the concept of its business simulation programs, which the company has developed for private businesses to train employees.
The business simulation programs, taught through the computer, allow trainees to progress based on their pace of learning and retention of knowledge, he said.
These self-directing and interactive courses could be used by universities to educate and help students who have graduated from high school but haven't acquired all the necessary skills and education for the higher level. "We are in conversations with universities to address their remedial education needs," Cole said.
He also suggested these programs could be adapted for use by state agencies looking to move people from welfare to work by training them with new skills.
? Steve LeSueur
Electronic Data Systems Corp.'s recent restructuring of its government division should give the company added capabilities with which to attack the booming state and local government market.
ÊÊLouis Matrone, senior vice president of marketing for EDS Government Industry Group, said the company has removed the organizational walls that divided the group by three customer types ? defense, civilian, and state and local. Now, the group is organized by solution types.
The Plano, Texas-based company realigned its government unit Oct. 5 across nine areas: personnel management systems; health care administration; financial systems; logistics systems; human services; security and intelligence systems; business systems; integrated solutions; and emerging markets.
"Part of what our organization has done has been to leverage capabilities across all industries," Matrone said. With the new division structure, EDS can apply more readily what it has learned at the federal level to the state and local level, he said.
For example, personnel systems developed for the military can be adapted for other government customers. "There is a tremendous amount of consistency that can save tremendous amounts of dollars."
The shifting of responsibilities from federal agencies to state and local governments, such as with welfare reform, helped to prompt EDS to reorganize its public sector unit.
"We are now able to focus in a much more efficient and effective way," Matrone said. The reorganization also will allow the company to respond more quickly to business opportunities, he said.
Matrone said he sees a slew of growth areas in the state and local government market for information technology products and services. Chief among them is enterprise outsourcing. "That is a segment of the industry that will take off," he said.
Service to citizens using the Internet is another scorching hot market. "Citizens are demanding the same level of service from the government that they get from banks, grocery stores and car dealers." The idea behind such services is to provide convenience and satisfaction for taxpayers and to save money, he said. Citizens handling motor vehicle registrations online, for example, can avoid the dreaded wait at the DMV office.
"We don't want to see citizens in line, we want to see them online," Matrone said.
Other state and local growth areas for EDS are law enforcement, social services and personnel management systems, he said.
In the law enforcement area, traffic systems to catch drivers who run red lights are catching on. EDS has installed about 30 such systems for New York City alone. These systems have automated cameras that snap pictures of cars and trucks running red lights and then mail citations to the vehicle owners.
EDS is among the top six systems integrators in the state and local government market, with $150 million to $300 million in sales per year. The company expects to grow its state and local business by 10 percent to 20 percent a year, largely from outsourcing, Matrone said.
? Patrick SeitzLockheed Martin Corp. has seen its business in the state and local market explode as more governments look for quicker and better ways to collect tolls, administer welfare and child services programs and improve services to citizens.
Company officials refused to release how much revenue is generated by projects with state and local governments, but business has been increasing by 40 percent a year for the past five years, said Holli Ploog, senior vice president and managing director for information resource management with Lockheed Martin Information Management Services.
The Teaneck, N.J., division, which oversees the bulk of Lockheed Martin's state and local business, has about 4,000 employees in 100 offices around the country. Lockheed Martin has completed projects for 46 states and more than 200 municipalities, Ploog said.
The company's state and local work is built around business pro-cess outsourcing in five areas: municipal services, transportation, child and family services, welfare services and criminal justice, Ploog said.
"Our strategy is to develop repeatable solutions that we can replicate across the country," she said.
Lockheed Martin will build and operate systems for state and local governments, which can pay for those systems either on a per-transaction basis or by giving Lockheed Martin a percentage of the increased revenue generated by the system.
The driving force behind many of these projects is more services for citizens, improved efficiency for the agency and new technology without upfront costs to the government, she said.
For example, the company has built red-light photo enforcement systems for Alexandria and Arlington, Va., Charlotte, N.C., and Los Angeles. Another important line of business is parking meter enforcement, she said. The company installs the equipment, issues the violations and collects the fines.
Lockheed Martin has replaced 15,000 parking meters and built a new system for enforcement and processing parking violations in the District of Columbia. The company owns and maintains the parking meters.
"We are paid based on our performance," Ploog said. "For the customer, there is no upfront cost."
The D.C. project is a first of its kind in parking violation systems and is being watched by other cities around the country, Ploog said.
Lockheed Martin also is a major provider of the systems and services that process child support payments.
"We process about 15 percent of the child support payments in the country," Ploog said. The system scans documents, processes mail, reads billing information, prints checks and stuffs envelopes. Lockheed Martin operates the system for the state and local governments and is paid on a transaction fee basis, Ploog said.
The company also must meet time and error rate goals to get paid, she said.
"There is a lot of pressure on our states to administer this program and to get the checks into the hands of the families as quickly as possible," Ploog said.
Technology is the key element, she said. In Los Angeles, it took two weeks to manually process payments. With Lockheed Martin's system, it takes 48 hours, she said. Newer systems are aiming for single-day processing.
Lockheed Martin has hit one notable snag in the child support market: In December 1997, California canceled what was expected to be a $100 million contract that swelled to $345 million in order to complete the project. Lockheed Martin and California parted ways when they could not agree on how to resolve their differences.
But in the past two years, the company has won about 20 contracts to build and operate job placement and development programs for states and cities that are coping with welfare reform requirements. So far, Lockheed Martin has placed about 20,000 former welfare recipients in new jobs, Ploog said.
A new capability for Lockheed Martin in the state and local market is electronic commerce. In September, the company launched GovernLink, a solution that allows citizens to pay taxes online, purchase and retrieve government records and conduct other business with the government. Lockheed Martin's first customer is the county clerk's office of Orange County, Calif.
Like the other business process outsourcing offerings, Lockheed Martin earns its revenue through transaction fees.
Lockheed Martin and Oracle Corp. of Redwood Shores, Calif., jointly developed GovernLink and are working together to market and implement it, Ploog said.
Nick WakemanFollow the big money. That's Unisys Corp.'s strategy for state and local government markets, where the company ranked in the top six on Washington Technology's list of the leading state and local systems integrators.
"We're focusing on the largest segments in state and local government," said Maury Shepherd, Unisys Corp.'s director of public sector marketing operations. "The market approach is to focus on developing repeatable solutions as much as possible."
Historically, the Blue Bell, Pa., company's strengths in state and local markets have been in the areas of social services and public safety. Unisys develops and integrates systems for health and human services agencies, police and courts that automate paper processes and create huge databases thousands of people can access. This strategy has paid off, and the company is sticking to it, Shepherd said.
Shepherd refused to disclose state and local government revenue, but Federal Sources Inc., a McLean, Va., research firm, estimated Unisys has revenue ranging from $150 million to $300 million annually.
Shepherd did say the company's state and local revenue has grown nearly 20 percent annually for the last three years. He expects the growth to continue.
Success in traditional markets hasn't kept Unisys from developing new applications and expanding into new markets. For example, in Toledo, Ohio, and Louisville, Ky., Unisys has developed systems that handle the states' tax and revenue processes. In September, Unisys won a contract in Pennsylvania to design a system that will allow people to go online to reserve campsites at local parks. Financial terms of the deals were not disclosed.
"The idea is to repeat these successes in other states," said Shepherd.
Larger integration deals are on the table as well. In another deal with Pennsylvania, Unisys announced in September a seven-year agreement worth $400 million to consolidate the state's 18 data centers into one center based in Harrisburg, the state capital. Unisys will design, integrate and run the data center, which will manage administrative functions for agencies such as the departments of transportation and revenue, the state police and the social services agency, Shepherd said. The final contract is under negotiation.
Electronic commerce is another area Unisys wants to pursue. "It's an area that's rapidly emerging as a hot market, and we'll be there," Shepherd said. One of the company's first efforts won an award in Canada Nov. 2. The company designed a system that allows constituents in Canada's four Atlantic provinces to input, search, retrieve and update information contained by government agencies.
Meanwhile, the company's core business in state and local markets is strong. In the public safety arena, Unisys has developed computer systems at 32 agencies in 20 states, including New York, Virginia, Pennsylvania and Massachusetts, Shepherd said.
In the health and human services field, agencies in eight of the country's 10 largest states use systems developed by Unisys, Shepherd said.
"You follow the money trail," he said. "The federal government provides a lot of funding for social services and public justice."