IBM Flexes Its Muscles In Government Market

IBM Flexes Its Muscles In Government Market

Anne Altman

When the news came in April that IBM Corp. was named prime contractor for the U.S. Customs Service's 15-year, $1.3 billion modernization contract, a lot of folks in government and industry took it to mean Big Blue was returning to the federal marketplace, years after selling off its government unit.

"I made the comment back when they won the Customs [project] that it was good to see them back in the market," said Ray Bjorklund, vice president of Federal Resources Inc., the market research firm based in McLean, Va.

Larry Davis, president of AFW Capital Partners LLC in Rockville, Md., said he wasn't surprised when IBM won the Customs contract. "It makes sense that when they do go back in, they're going to go back after the large contracts, and it makes sense they're going to come back as a prime," he said.

IBM officials acknowledge there has been a perception that the company essentially left the federal prime contracting market when its federal business systems division was sold to Loral in 1994 as part of a restructuring led by Louis Gerstner, IBM chairman and chief executive officer. But they also contend IBM never actually left the federal marketplace.

"There was always this kind of funny look on customers' faces, that 'We thought you were sold,' " said Anne Altman, managing director, federal business for IBM's public sector. "To some extent, that image has followed us."





































Federal Opportunities IBM is Pursuing
AgencyProgramIBM Role
NASAScientific & Engineering
Workstation Procurement III
Prime and sub
NavyNavy Exchange and CommissariesPrime
CommerceNational Center for Atmospheric ResearchPrime
HUDHUD Information Technology ServicesPrime or sub
NSAGroundbreakerSub
CensusData Access & Dissemination SystemPrime



The federal division was sold because it strayed from IBM's core information technology business into defense technology and integration, Altman said. "We were known as an aerospace company, just like Lockheed Martin," she said.

At the same time the federal unit was sold off, IBM moved to restructure and create a service business to bring best practices to its customers.

While IBM refocused its energies on hardware and software product development, the company also started to build a consulting practice in emerging service areas, such as enterprise resource management, customer relations management and business intelligence, and to offer a range of outsourcing services.

The company also has moved to invest in people who were subject matter experts, Altman said. For instance, to pursue the Customs contract, IBM sought out people who understood trade facilitation and law enforcement, and others who understood the administrative side ? the business side ? of the agency.

The resulting organization looks different in many ways from the old federal unit. In 1994, IBM Federal had some 10,000 employees, Altman said. In the new organization, she has about 300 salespeople reporting to her, with another 1,500 people throughout the organization working in a dotted-line relationship to support business and pursue new contracts.

The company's strategy appears to be paying off. In May, IBM was ranked 18th on the Washington Technology Top 100 list of federal prime contractors, with about $359 million in prime contracting revenue for fiscal 2000.

Overall, the company reported revenue of $88.4 billion and net income of $8.1 billion in 2000.

While Altman would not disclose the size of IBM's federal business, she said her objective is to increase its revenue at twice the growth rate of the federal IT market itself, which she pegs at 6.5 percent.

To accomplish that goal, Altman said IBM is eyeing a number of large programs, such as the Department of Housing and Urban Development's impending $4 billion IT services contract.





IBM CORP.
www.ibm.com

Headquarters: Armonk, N.Y.

Chairman and CEO: Louis Gerstner

Employees: 316,000

2000 Revenue: $88.4 billion

2000 Net Income: $8.1 billion

Ticker: IBM on the New York Stock Exchange


Altman said the company also is investing in new skill sets to better serve the defense and intelligence communities. For instance, IBM has awarded a contract to Logicon Inc. to take the company through the formal Defense Information Systems Agency certification process to qualify for the Defense Information Infrastructure-Common Operating Environment.

This program establishes a common standard for the Defense Department to operate any kind of server independent of the manufacturer, so certification is a necessary prerequisite for IBM to bid on contracts in the future that involve the standard.

IBM also is a member of the AT&T Corp. team bidding on Project Groundbreaker, the National Security Agency's 10-year, $5 billion outsourcing contract for IT infrastructure support. The winner is expected to be announced by the end of July.

Federal business today is split roughly 70 percent civilian, 30 percent defense, according to Bill Jones, IBM's manager for federal business development. The company is aggressively moving to increase market share in the defense and intelligence sectors and bring that allocation closer together.

AFW's Davis said that procurement reform, which has brought federal purchasing behavior closer to commercial patterns, has helped IBM reinvent its government business.

"There are huge multiple awards, the time sequence has probably been cut close to in half, there's steady, stable growth, a big emphasis on services, a focus on outsourcing," Davis said. "The way the federal market has changed in terms of the procurement model, companies such as IBM with major outsourcing [programs] and world-class marketing are going to pursue the business."

Altman agreed changes in the federal procurement model have brought government purchasing closer to commercial practices.

But the government is not the same as the private sector, she said, pointing to agencies' requirements for security and privacy as an example of significant difference.

IBM can serve as exhibit A for some of the government's goals, she said.

For instance, the company used to have 155 data centers; it now has 26. The goal is to reduce the data centers further, to six for the entire company. IBM used to have numerous networks set up all over the world; now there is one global network.

Lorrie Scardino, research director at market research firm Gartner Dataquest Inc., Stamford, Conn., said IBM's consultants will have to scrupulously avoid the appearance of favoring IBM products in the solutions they propose to federal agencies.

"IBM has got to be technology-neutral and technology-independent,
[and] to use and recommend IBM products only when appropriate," Scardino said.

The Customs modernization project will provide a major test of IBM's ability to separate out its commitment to the customer's welfare from its belief in its own products, she said.

"I think [IBM] is going to be challenged by that, and I think the buyer is going to be challenged by accepting that," Scardino said. "They're going to imagine, correctly, that IBM has a bias toward its own products."

Jones, however, said that when IBM goes to market as a solutions company, it bids on the best products to meet customer needs.

"There are contracts where we've bid Hewlett-Packard products, where we've bid Oracle products," he said. "Our global services organization is one of the largest [purchasers] of Sun products. ... You can't do it alone. The needs are too big, too specific."

Reader Comments

Please post your comments here. Comments are moderated, so they may not appear immediately after submitting. We will not post comments that we consider abusive or off-topic.

Please type the letters/numbers you see above

What is your e-mail address?

My e-mail address is:

Do you have a password?

Forgot your password? Click here
close

Trending

  • Dive into our Contract Award database

    In an exclusive for WT Insider members, we are collecting all of the contract awards we cover into a database that you can sort by contractor, agency, value and other parameters. You can also download it into a spreadsheet. Our databases track awards back to 2013. Read More

  • Navigating the trends and issues of 2016 Nick Wakeman

    In our latest WT Insider Report, we pull together our best advice, insights and reporting on the trends and issues that will shape the market in 2016 and beyond. Read More

contracts DB

Washington Technology Daily

Sign up for our newsletter.

I agree to this site's Privacy Policy.