Eye on the states: You can't afford to flunk this pop quiz

Tom Davies

Your customer tells you it's having its worst financial crisis in half a century. What do you do?

If you are a technology company that sells to state government, you need an answer -- today.

These businesses are not facing this fiscal nightmare alone. As new governors and legislatures across the country take office, they also are trying to figure out how best to manage their growing budget shortfalls.

This dismal New Year's greeting came from the National Governors Association. Clearly, the intended audience was not just the heads of states; they know how bad the situation is. The governors are trying to find a sympathetic ear, both on Capitol Hill and in the White House, for some immediate financial relief. Getting federal help won't be easy.

First, the states spent most of the latter part of the 1990s attacking the federal government under the banner of devolution, making a compelling case that the federal government was part of the problem, not the solution. Then, the states cut a highly favorable deal that allowed them to continue to receive record levels of federal funding for assistance to needy families, while caseloads subsequently dropped by more than 50 percent. They also received a truly unprecedented windfall of billions in tobacco settlement monies with no strings attached.

To top it off, the states acted as if they believed the hype about a new economy, and reduced taxes while going on an unprecedented spending spree. It's no surprise, then, that governors are having a tough time gaining sympathy.

If there is a silver lining, it's that the crisis is fiscal, not economic. The states' economic health, as measured by indicators such as unemployment rates, population growth and housing starts, is not in crisis. So the good news is that, because this is largely a self-created fiscal mess, it is well within the control of the policy-makers to dig their way out. As long as they don't resort to one-time gimmicks, states should be able to get back on course by year's end.

In the meantime, tech companies should understand this: The state market will never be what it once was. State and local governments will still collectively spend somewhere between $46 billion and $48 billion on technology this year, so sales may still grow. But companies will have to work a lot harder and become a lot smarter at how they sell.

Businesses also should recognize that their customers have probably changed. Chief information officers are no longer the kings and queens of technology spending. Influence and power will shift to executives and key staff in the program and budget offices. Many of them have been itching for years to get their hands on what they have perceived as runaway technology spending with little or no payoff.

And while the technology hasn't changed, the agenda of the technology buyers sure has. E-government is becoming a way to reduce costs and eliminate redundancy. Centralizing control and consolidating operations is back in vogue as states tighten up information technology management.

Selling value to state governments in times like these is not simply about putting together a return-on-investment statement. It's about having a deep understanding of the customers and relationships with insiders who are willing to include your company in discussions about what needs to be done. It also means going to market in a way that leads to a competitive advantage, which many companies have skated by without mastering. *

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

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