Elections could slow IT projects

At least 20 states will have new governors

After the election...

Technology companies can expect:

*Business slowdown in states with new governors;

*Fresh opportunities to help states develop effective IT strategies;

*Increased focus on business models that show substantial savings, in response to budget shortfalls;

*Growing demand for enterprise resource planning;

*Attrition of support contracts in states doing IT consolidation;

*More system upgrades; fewer

system replacements.

Thom Rubel, director of state IT programs for the National Governors Association, says it's unlikely a gubernatorial candidate running today doesn't understand the value-added transformational nature of IT.

"Some new governors will be interested in doing more with technology and be interested in taking on new initiatives," says John Kost, vice president of worldwide public-sector research at Gartner Dataquest.

An expected high turnover among state governors following next month's elections could slow the pace of new technology projects, as newly elected executives devote their first year to developing strategies and programs that reflect their individual priorities.

Voters will head to the polls in November to cast ballots for gubernatorial candidates in 36 states. In at least 20 of these states, elections are guaranteed to produce changes in administration, either from term limitations or from voluntary withdrawal of incumbents.

A new administration usually takes almost a year to develop an information technology strategy, said John Goggin, vice president and director of government strategy for the market research firm Meta Group Inc., Stamford, Conn. The general pattern is for state officials to continue existing initiatives and discuss strategy with the private sector in the first quarter, formulate policy in the second quarter and unveil their strategies in the third quarter.

Adding to the uncertainty is the financial crisis facing many states. Since fiscal 2002 budgets were enacted, 40 states have had to battle steep shortfalls, which soared as high as $40 billion earlier this year, according to the Washington-based National Association of State Budget Officers. Because state revenue growth generally lags behind the end of a recession by as much as 12 to 18 months, fiscal woes are expected to continue in 2003, the group said.

Overall, industry officials expect incoming governors to take a hard look at IT investment and where they might consolidate resources or cut projects to reduce savings. Systems integrators can profit by reaching out to new state officials and helping them develop strategies that meet their needs, they said.

In states that remain unchanged, integrators should look for opportunities for modifications and upgrades to existing projects, but should not expect to see major initiatives begin or large projects awarded next year.

What sets the 2002 gubernatorial election apart from others is that it is occurring in the middle of a recession, said John Kost, vice president of worldwide public-sector research at the market research firm Gartner Dataquest, Stamford, Conn.
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"Some new governors will be interested in doing more with technology and be interested in taking on new initiatives, [while] others will have less interest than their predecessors and, in order to balance budgets, will start canceling projects," Kost said.

Bob Campbell, global senior partner for the public sector at Deloitte Consulting of New York, said he expects new governors will be sharply focused on business management, cost management and so-called change initiatives rather than major technology initiatives.

To achieve these changes, governors likely will support enterprise resource planning and e-government initiatives, which can facilitate change across the entire "enterprise" of state government, Campbell said.

Integrators shouldn't worry about losing existing contracts, though, said Tom Davies, a senior vice president at Current Analysis Inc., Sterling, Va. Major initiatives "are usually wound down before the new governor comes in, or they are so far along that there's no turning back," he said.

Bill Loomis, managing director of the technology research group at the investment bank Legg Mason Wood Walker Inc., Baltimore, said integrators are most likely to win new awards next year for projects that add functionality to existing systems and for those that maintain existing applications. However, they are not likely to see the award of any large programs or any major changes in direction, he said.

While the commercial market remains static with few or no awards this quarter, integrators continue to pick up key state awards in the fourth quarter for ERP and for health and human services, Loomis said.

The trend toward IT consolidation may pose a threat to some hardware and software support contracts, Kost said. But most state governments haven't gotten far enough along in their IT consolidation to eliminate many of those contracts. Even if the planned consolidations are implemented successfully, it would be 2004 before the effect would be felt on the market, he said.

Analysts emphasized that the private sector should get involved in the early planning phases of new administrations. Systems integrators typically participate in the strategic planning process by meeting with new state CIOs and submitting position papers addressing transition matters, Campbell said.

Kost said integrators should help set the agenda "by whatever means required." By befriending new CIOs, companies can help them develop effective strategies that will result in opportunities for the IT community, he said.

"Those opportunities may not necessarily accrue to the benefit of the company that does them," Kost said. "It's one of those situations where the rising tide raises all boats."

Goggin said tight budgets have forced state officials to be more thoughtful about their acquisitions than in the past. Still, the opportunities for integrators are greater than before, because they have the chance to sell enterprise solutions, he said.

"I see less money, but not less opportunity," Goggin said.

Thom Rubel, director of state IT programs for the Washington-based National Governors Association, is more cautious. While the enterprise approach isn't necessarily producing more business opportunities, it is resulting in a better business atmosphere for systems integrators by reducing vendor costs and increasing the opportunity for improved productivity and better solutions for both states and vendors, he said.

Governors understand that IT is an integral part of state government and a necessity of carrying out effective government functions, Rubel said.

"It is unlikely that there is a gubernatorial candidate running today who doesn't understand the value-added transformational nature of IT," he said. *

Staff writer William Welsh can be reached at wwelsh@postnewsweektech.com.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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