IBM Logs On To E-Gov Projects

IBM Logs On To E-Gov Projects

Louis Gerstner Jr.

By Nick Wakeman

IBM Corp.'s government unit is chasing electronic commerce, procurement and citizen services projects in both domestic and international markets as Big Blue positions itself as the leader in electronic business.

The government market lags its mighty commercial counterpart, but "it is only a matter of time before e-business will impact every government agency," said Ken Thornton, general manager of IBM Global Government Industry.

Thornton estimated less than 10 percent of global government services are delivered electronically. "In the future, that number will climb to 80 or 90 percent," he said.

The push by IBM's government unit is part of a companywide effort to highlight electronic business capabilities. In comments to analysts May 12, IBM Chairman Louis Gerstner Jr. said $20 billion — or a quarter of the company's revenue — is related to electronic business. Gerstner was including sales of IBM products over the Internet as well as services.

Gerstner's comments sent IBM's stock price surging from $225.50 to a record $246 per share May 13.

The system integrator's stock price has soared 43 percent since April 21, when its first-quarter earnings handily beat analysts' forecasts.

"I think IBM wants to change its name to EBM," said Sam Albert, president of Sam Albert Associates, a management consulting firm in Scarsdale, N.Y., that tracks IBM. "If you work at IBM today and you don't have electronic business on your mind, you'd better find another job."

While Dell Computer Co. of Round Rock, Texas, has gotten a lot of attention for selling about $9 million of products a day over the Internet, IBM has been selling $28 million a day, Albert said.

And the government could become IBM's biggest electronic business customer, he said. "The government does a lot of procurement, and it provides a lot of services," he said.

IBM had sales of $81.7 billion in 1998. The federal market pulled in about $1.4 billion in 1998, up 20 percent from 1997, industry sources said.

Market research company Federal Sources Inc., McLean, Va., estimates the federal government will spend $1.3 billion on electronic government projects in 2000, with agencies such as the Department of Defense, the Army and Social Security Administration leading the way.

The definition of what is electronic business in government is evolving, said Maryann Hirsch, senior vice president at Federal Sources.

"So if IBM isn't presently considered the leader, certainly [it] will be in the future," she said.

IBM's competitors include a wide range of companies that are making moves into the electronic business market. Some of the larger players are American Management Systems Inc. of Fairfax, Va., Electronic Data Systems Corp. of Plano, Texas, KPMG of New York, Lockheed Martin Corp. of Bethesda, Md., and Unisys Corp. of Blue Bell, Pa.

Others include new entrants in the federal market, such as MicroStrategy Inc. of Vienna, Va.

While Thornton has faith that the government market for electronic business is taking off, there still are hurdles to cross, he said.

"It takes political leadership to support these kind of transformative initiatives," he said

Questions often arise about initial funding, forming the right kind of government-private sector partnerships and getting different government agencies to work together, Thornton said.

State and local government projects have the lead over the federal government, especially in area of services to the citizen, he said.

"A lot of the federal programs are administered in the states," Thornton said.

IBM has showcase projects with Arizona's Department of Motor Vehicles, the state of Maryland and Ontario, Canada. "These are not casual systems but mission critical, transaction-based Internet systems," he said.

For example, the Ontario system, which uses kiosks to allow citizens to access a variety of government services, handles 65,000 transactions a month, he said.

In Arizona, selling a license plate sticker in the state costs an estimated $6.60 when a clerk has to process paper, but via the Web, the cost is $1.60, Thornton said. "There are a real cost savings here."

In the federal market, IBM won the Census Bureau's Data Access and Dissemination System contract in 1997, worth $35 million over nine years. Census wants to build a better system for distributing data.

IBM also is looking to a new smart card project with the General Services Administration to open up more business with the federal government, Thornton said. In June, IBM will begin implementing a smart card project with 400 GSA employees that will allow them to use one card for building access, access to computers and networks and for purchasing.

"It is a very futuristic project," Thornton said.

IBM also is working electronic business elements into its $100 million contract with the U.S. Postal Service to replace point of sale machines at post offices.

"We are evaluating self-service terminals," he said.

The postal service contract, which IBM won in 1996 but could grow into a $1 billion contract with follow-ons, also includes a large amount of business process re-engineering, Thornton said.

Revamping processes is a critical part of developing electronic business systems, he said. "You have to do more than just show an electronic face to the customer," he said.

While IBM has the PCs, servers and other hardware needed to build the systems, it is the company's services that give it an edge, Albert said.

"People lose sight of the fact that IBM has transformed itself," he said. For every dollar the company makes on hardware, it makes $4 on services, he said."IBM's skill set is long and deep," Hirsch said.

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