Eye on the States: New winds blowing, IT companies must adjust their sails

Thomas Davies

Everywhere you turn, there are signs it's a new day in state and local government. Tax collections are failing to keep pace with state spending needs. Spending cutbacks are widespread. The governors, once again, are looking to the federal government for relief.

What does this mean for companies selling to state and local governments? For starters, no company, regardless of how successful it may have been in the dot-gov era, will escape the fallout. Companies must look fresh at their business development practices. Just as state and local officials are struggling to jettison bad habits formed over the past five or six years, companies need to do the same. The first to go: hidden assumptions about the market that no longer work.

Take the idea that you can safely ignore the federal government. When devolution was in full swing, state and local governments believed they were masters of their own destinies. Their revenue sources were growing faster than their spending needs. New policies, such as welfare reform, produced dramatic declines in caseloads.

In these circumstances, the states flexed their political muscles and let the federal government know they didn't need its help. Many companies picked up on the message and never bothered to factor the federal government into their business development practices.

Devolution is now history. The federal government is once again in the forefront. The governors recognize that their top priorities, such as public safety and health care, require a close working relationship with Washington.

Companies need to understand the federal government if they are to help their state customers. They need to be intimately familiar with the sources of federal funding for state IT projects and know what strings are attached. And they need to realign their internal business development organizations selling to federal, state and local governments to ensure a tightly coordinated, unified approach to the market.

A second hidden assumption that no longer holds true ? if it ever did ? is that state and local officials are really interested in technology per se. For a brief moment, it did seem the states were in a race to be at the front of the technology parade. But most have come down to Earth.

Technology is once again viewed not an end unto itself, but as a means to an end, a tool for improving productivity, protecting the country and servicing citizens more efficiently.

This is taking many newcomers to the state and local market by surprise. They can no longer be assured of an eager audience for their products and services. The business value of the technology, not the technology itself, is what state and local governments are now interested in. And selling business value is unfamiliar ground for many companies who led with their technology during the past five years.

A third assumption is that state and local governments will readily accept risk. Some states, swept up in dot-gov exuberance, were willing to launch mega IT projects and forego immediate results in exchange for access to the latest technologies and best management practices.

Today, states and localities are much more risk averse. That's not to say they aren't willing to experiment and innovate, but innovations will be much more controlled and measured.

Everyone is seeking immediate results. Buyers are looking to the IT companies to shoulder much more responsibility for producing results. And they will hold companies accountable if performance doesn't live up to promise.

The states are headed into strong head winds. It's time for the IT companies to adjust their sails as well.

Thomas Davies is senior vice president at Current Analysis in Sterling, Va. His e-mail address is tdavies@currentanalysis.com.

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