AMS Girds for Fierce Market Competition

By Nick Wakeman, Staff WriterAmerican Management Systems Inc. is exploring new alliances and beefing up its marketing efforts to fend off competition from larger software companies scrambling to pitch their tents in the federal financial management software space.While AMS has sold financial management software to federal agencies since the mid-1980s, it has seen increased competition in the past year from enterprise resource planning software companies, such as SAP, PeopleSoft and Oracle Corp., that have begun pushing into the market. AMS officials expect to sell about $100 million worth of the financial management software to the federal government in 1999, up more than 20 percent from one year ago. Overall, AMS' federal business accounts for about $240 million of total revenue. In 1998, AMS had $1 billion in revenue.Alliances with companies that provide human resources, logistics and procurement systems will help the Fairfax, Va.-based systems integrator go to the federal market with products that complement its own software products and services, said Harry Barschdorf, vice president of the government financial management and administration practice at AMS. The company has not signed any partners yet, but is looking at commercial vendors who want to bring their software to the federal market, he said.Striking alliances with other software vendors is a bit of a departure for Barschdorf's group. "We have a reputation of being a little isolationist," he said. But with the ERP companies positioning themselves as an alternative to AMS, said Barschdorf, the organization had to look at "how we approach the market."The larger companies' financial management software packages have been certified by the federal government, as has AMS', but the ERP vendors are leveraging that software to sell federal customers enterprisewide applications in areas such as human resources and supply chain management, Barschdorf said.PeopleSoft and SAP both won the General Services Administration's $45 million financial management software contract in February. Both companies also have released in the last six months versions of their software that are designed specifically for the government market.AMS needs to add capabilities that can address the moves being made by the ERP vendors, said Payton Smith, an analyst with the market research firm Federal Sources Inc. of McLean, Va. AMS, which virtually was the only provider of packaged financial management software to the federal government since the mid-1980s, "has a good track record, but they are facing some global competitors now," he said.Major customers for AMS' financial software include the GSA, Veterans Affairs, Customs Service and the Patent and Trademark Office, company officials said.More than 50 agencies use AMS' Momentum and Federal Financial Systems software as their core financial management system, Barschdorf said. But even AMS' installed base is not safe from competitors, because many of those agencies are considering a transition from mainframe systems to distributed IT architectures, he said. "That is the kind of thing that will compel an organization to look at other offerings," he said. "We are going to have to have a much more aggressive presence."The ERP vendors are moving into the government market because the commercial market is getting saturated and they are looking for new growth opportunities, said Brace Brooks, an analyst with the market research firm Johnston, Lemon & Co. of Washington."I see this as an emerging long-term trend for AMS, but not an immediate, significant threat," Brooks said.Another reason ERP vendors are rushing into the market is that the federal government wants to do more with its financial management systems, Smith said. For instance, the government plans to use data collected by financial management systems to make better and faster decisions, he said.Barschdorf agreed. "Financial management systems aren't just about transaction processing anymore," he said. Agencies want to link budget data to programs to track performance and analyze resources, he said."You need to relate program activities to the budget and see how much it really costs to run an embassy, for example. But the foundation of doing this is the financial management system," he said.As AMS looks for growth, the company will emphasize that its systems are built on an open system that allows agencies flexibility in linking financial management systems to other information technology systems, Barschdorf said."What we are offering is an enterprisewide architecture that can let you leverage off your existing systems," he said.There is no single market leader in the financial management systems or enterprise resource planning in the government market, Smith said.Federal Sources estimates that spending by the federal government for financial management software will grow from $1.6 billion in 1998 to $2 billion in 2003.Spending on ERP implementations by the federal government, which Smith defines as including financial management, human resources and materials management, will grow from $2.8 billion in 1998 to $3.7 billion in 2003.In addition to looking for alliances that can bring AMS complementary software products, the company is stepping up its marketing efforts, Barschdorf said. One target is the Defense Department, which has not been a big customer of AMS financial management software. In May, AMS established a unit headed by AMS Vice President Roger Scearce to pursue defense agencies. The company hopes to leverage the strong experience it has with federal civilian agencies and state and local governments into this area, Barschdorf said. The state and local market remains one of AMS' strongest growth areas, with revenue from state and local governments growing in the quarter ended June 30 from $63.1 million to $83.4 million.