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By Nick Wakeman

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Nick Wakeman

13 trends and predictions driving today's market

This blog is adapted from a talk I gave this morning at a RightNow Technologies partnering event.

They asked me to kick off the morning with an overview of the market and the trends with some special emphasis on transparency and cloud computing.

One of the problems -- or fears -- I have with this type of thing is that I’ll just repeat things that everyone has heard.

Although I got some good feedback after my talk, I know no one is going to say to my face that I flopped. So I thought I’d throw out my major points here and see what people thought.

The Top 100

The companies on Washington Technology's annual Top 100 rankings are important because of the dominant positions they hold in the market. Of the $550 billion the government contracts out each year, these 100 captured $129.9 billion in fiscal 2009. The top 20 captured $91.5 billion.

We follow them closely because what these companies do reflect the major trends in the market, particularly where the market is growing and where contracting opportunities are developing.

National security

This will continue to be the dominant priority for the federal government. We are fighting two wars. We still have the global war on terrorism. Cyberattacks remain a major threat.
An issue that hasn’t gotten much attention yet, but will in the future, is energy. Not just green IT, but after Congress and the president agree on an energy reform bill, we’ll see systems integrators and other government contractors making investments to meet the requirements of that bill. Right now, they are waiting because with a reform bill there is now too much risk to invest.

Procurement

There is good and bad news with procurement. The bad news is that it is a mess. There are too few acquisition officers managing too many contracts. The result is delays, mistakes and an increase in oversight.

The good news is that procurement is being talked about by the president. It is a front burner issue as the government tries to get control of its spending.

Budget and deficit

This is the elephant in the room. It is a very serious situation. The government only takes in enough revenue to pay for Social Security, Medicare and Medicaid. Everything else is done on borrowed money.

The effect is that even high priority areas such as national security will see increased scrutiny of their spending, if not outright cuts. There will be more demand for a return on investment, and forget about large new projects. The projects we will see will be smaller and will need to deliver results quickly. If not, they are gone.


BRIGHT SPOTS

Transparency and open government

Right now, transparency isn’t working well. But it's a positive trend. The more information that is publicly available, the better off we are.

What we need are better tools to make sense of the data dump. One possible approach is to use social media tools. The ability to share, comment, aggregate and collect information can be powerful.

One simple idea is to add a Like button to government documents. Or have the ability to see what your friends or contacts think about a government report or other data.

Without tools, without ways to bring context and meaning to the data, transparency is just a bunch of noise.

Cloud computing

There is still a lot of hype about cloud computing, but there is a sense of inevitability. It is not when, but if, to borrow a phrase. In five years we’ll see a wide-range of applications of cloud computing, from private clouds, to public, to hybrids.

Another aspect of cloud computing that is interesting is that it can level the playing field. A small or midsized company with the right partners can more realistically take on a large company. And large companies that have significant business building and managing infrastructure for agencies will see that cash-rich business erode. They will have to adjust.

Of course, many of the large companies are developing cloud computing lines of business, so the adjusting has already begun.

Strategic moves

Driven by these trends, we are seeing companies do the following:

  • Restructure their businesses to be more efficient and to align their business with government priorities.
  • Make more mergers and acquisitions to move into the priority markets or to replace lost revenue.
  • Perform more marketing efforts focused on how contractors can help agencies save money and operate more efficiently.

My predictions for the market are:

  • Slower organic growth.
  • Fewer big, new opportunities.
  • More competition as more companies chase fewer opportunities.
  • Pressure on profitability.

That’s a quick nutshell of my 30-minute talk. Am I on the right track? What am I missing?

Posted by Nick Wakeman on Aug 17, 2010 at 7:23 PM


Reader Comments

Thu, Aug 19, 2010 leemck02

Shifting government spending to commercial spending is very simple to say, do you mean corporate welfare? What is to be said when companies that are supposed to be driven by the market, or growth from profits and we end up with companies too big to fail? Cutting spending in entitlements is not justification to have the same equivalent in companies on corporate welfare. There are laws against subsidizing companies. Socialism is not the answer. I can see some research and development spending but that should be shared. I think if companies go back to the basics of quality and then people will come back to them because the product or service will give value in balance for the buck.

Wed, Aug 18, 2010 leemck02

Shifting government spending to commercial spending is very simple to say, what do you mean? Is it give the money to companies that are supposed to be driven by the market, or profits so we can have companies too big to fail? Cutting spending in entitlements is not justification to have the same equivalent as companies on corporate welfare. Socialism is not the answer. I can see some research and development spending but that should be shared. I think if companies go back to the basics of quality and then people will come back to them because the product or service will give vale at a balance for the buck.

Wed, Aug 18, 2010 Deniece Peterson

One other point that's missing is the human capital issue (which is both a challenge and a bright spot). We've seen spending increase significantly (120%+ increase in discretionary spending alone since FY2000), but the workforce has remained basically flat. As a result, the federal workforce has been struggling to do the work that facilitated the increase in spending. It's been a good thing for contractors because it meant that the federal government needed help. But the tone has changed - now there's a movement to reduce the reliance on contractors. If the federal ranks don't expand significantly AND contractors are reduced AND major budget cuts/programs don't occur, then who's going to do all the work?

Wed, Aug 18, 2010 James George 22201

It is essential for the US government to shift from government spending to commercial investment for renewing manufacturing America. America needs to produce commercially superior products for the global market. That requires a dramatically new strategy. It should become a requirement that if you want to service the government as a contractor, you must first demonstrate commercial success. The government, including the Department of Defense, cannot afford to be a source of corporate welfare. President Obama’s emphasis on the energy sector is correct. The faster the US moves from a petroleum-based economy, the faster we will recover as we increase global security.

Wed, Aug 18, 2010 Virginia

Nick makes some very important points, well worth consideration by anyone hoping to penetrate or expand the federal market. One point missing, and perhaps not relevant to this blog, is the fact that challenges in federal procurement tend to come from the nature of the federal enterprise itself. The tangle of regulations on procurement mirror their counterparts in other parts of government processes and grow from the political processes that drive them. For example, large firms' [read: "contributors"] and incumbent contractors' advantage over small firms and new entrants are not accidents. The fact as well that your failures in procurement and system implementation tend not to follow you if you are either a buyer or implementer means that good efforts tend to follow good efforts and bad efforts are neither corrected not prevented by ditching the boobs responsible for them. As for transparency, it is a good mantra and perhaps a good way for the government to spend money, but true transparency is in the underlying processes and won't be achieved in any meaningful way until those processes, and the groups who profit from the status quo, are out of power. That's important to firms in the market because it means that the transparency hype will be easily forgotten when it has served its short term purpose. Myriad commissions over the past four decades have looked at the morass of federal procurement, in some cases, recommending drastic reforms. Sadly, most of these recommendations went on the shelf where they still reside. Hopefully Nick's blogs will help to shine a little light on this sorry situation, but coming to the close of a forty year career selling to and developing for the federal government, I don't expect to see it in my lifetime.

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