The Buck Starts Here

Two weeks ago, systems integrator Anteon got word at its Fairfax, Va., offices that it had won a $348 million contract to help the U.S. Navy modernize its combat systems. The week before that, Accenture, Reston, Va., learned it had snagged the biggest contract awarded to date by the Department of Homeland Security--up to $10 billion over 10 years to help secure the nation's borders and track foreign visitors. And just days before that, Boulder Corp., an 8(a) woman-owned solution provider whose government business represents about one-quarter of its annual revenue, heard it had been named to the STARS GWAC contract. The small-business set-aside contract enables government customers to sole-source solutions from integrators at up to $3 million per project without having to put them out to bid.

At all levels, for all sizes of VARs, 2004 is shaping up to be a banner year to be selling technology products and services to government agencies.

"The government market is where the money is," said Lesley Taufer, president of six-year-old Boulder, based in Colorado.

First off, it's turnaround time at the state and local levels where agencies are emerging from a recent slow- down to spend about $46 billion on IT in 2004, according to public-sector consultant Input. Spending will grow at about 8 percent or more a year for the next five years, Input predicts.

Federal IT spending--a bigger pie at around $70 billion--is still growing, too, albeit at a somewhat slower rate. Federal agencies have finished their policy debates related to IT, said Peggy Padalino, vice president of sales at Input, and now they're starting to nail down architectures, turning to VARs and systems integrators to help with the implementation stage. "The money is starting to flow," Padalino said.

Jim White, president of Northrop Grumman Information Technology's computing systems division, a Cisco Systems Gold partner, said his Herndon, Va.-based unit's federal business is growing at around 10 percent to 12 percent but that's outpaced by its related services and solution business, which is galloping ahead at 100 percent per year. Why the huge difference? "Government agencies aren't looking for a product dropped on their desk or in their data center. They're looking for services and solutions that solve a particular business problem," White said.

Said Scott Friedlander, group vice president of sales at Chantilly, Va.-based GTSI, a well-known federal integrator: "In almost every meeting I'm in with CIOs, it's pretty common that they're looking to work with trusted advisers."

In fact, new government purchasing vehicles available to VARs and integrators are designed to support investment in solutions, Taufer said. Boulder's STARS GWAC contract "allows us to provide solutions without all the red tape that used to be involved," she said.

Government agencies really have no choice in the matter. Public-sector IT managers are now under orders from President Bush and the Office of Management and Budget to use technology solutions to drive efficiencies throughout their organizations. Meanwhile, security, both cyber and physical, is a front-and-center concern at all levels of government, even as agencies are being required to open themselves up and collaborate more with fellow agencies. That need for collaboration, in turn, is driving updates to network infrastructures built in the late 1990s that now must be upgraded to meet today's bandwidth demands.

"There is a hunger for government to be effective," said Todd Sickles, a partner in Accenture's CRM practice. And when consultants hear agency CIOs talk about enterprise architectures, he says, "that's music to our ears."

Vendors have long recognized the value of this market, where business stayed strong even throughout the recent downturn in corporate spending. Sun Microsystems, Cisco and Siebel Systems all sent their CEOs to the annual Federal Office Systems Expo (FOSE) in Washington earlier this spring to give their pitch to government CIOs and technology buyers.

For Cisco, government is a $1.3 billion business, on a par with its service provider business; at Siebel, it's one of the company's largest vertical industry markets; and for Sun, it represents almost one-quarter of the company's worldwide revenue.

"It's our strongest-growing market," said Tom Kriedler, vice president of Sun's government division. "You go where the money is."

Sun, Santa Clara, Calif., runs about 70 percent of its government business through the channel, Kriedler said. "The reason for that is pretty simple--the customers are buying solutions."

San Jose, Calif.-based Cisco, too, has adapted its selling strategy to support the government's growing interest in solutions, said Scott Spehar, vice president of Cisco's federal area, pointing to a shift in how the vendor positions its products. "Today, we've added business development experts and strategic account executives to our support organization to educate ourselves as to where the agencies are going."

Cisco partner Force3, Crofton, Md., has found a niche with solutions focused on military health care. When government agencies evaluate their technology purchases, "They don't want you coming to them with a product and saying, 'This is bigger, better and faster,' " said Vince Bucci, executive vice president of sales and marketing at Force3. Instead, they want to see the solution in action.

And that's why solution-selling isn't easy. Two weeks ago, Force3 built a replica of a dentist's office in its San Antonio facility so its team could give a live, two-day demonstration for some potential customers--25 members of the Air Force Air Education Training Command, including dental surgeons, IT personnel and eight "full-bird colonels," said Bucci.

The working prototype Force3 built with a local production company included two examination rooms and even a reception area. It was outfitted with X-ray machines and a network that included Cisco Catalyst 3550 switches, imaging software from MediCor and Adstra, a Hitachi 9570 storage unit and Quantum M1500 backup system, a Codonics digital imager and a Hewlett-Packard DL 360 server.

Putting his marketing manager in the patient's chair, Bucci showed how all this technology would work to support a fully operational dental office that could be deployed at any Department of Defense hospital site in the world. "That's what they wanted to see," he said. "There's no question, we've noticed in general that spending on commodity products has gone down. But if you come to your customer base with an integrated solution that can help them solve a business problem or help them save budget dollars through automation, they're very open to it."

Government integrator GTSI has responded to this shift in focus among its customer base by ramping up its expertise around what it calls "solutions aggregation."

Twenty-year-old GTSI for much of its existence has centered on two main areas of business: distribution and traditional VAR services. As government agencies' needs have grown, however, so has GTSI. In the past five years it has developed 11 enterprise practices, including security, storage and networking. During the past three years, GTSI has been working on developing more--and more sophisticated--bundled solutions specifically designed for the government market.

For example, the U.S. Army was looking for a way to let soldiers in Iraq access realtime data via the Web and call home cheaply. GTSI worked with Herndon-based global IP service provider Segovia to combine Cisco routers and switches, Panasonic ruggedized laptops, and VoIP services from Segovia to create Internet cafs--self-contained, remote communications sites offering phone and PC capabilities. GTSI shipped 260 of these systems to the military, and they are now deployed in multiple locations throughout war-torn Iraq.

Likewise, GTSI worked with IBM and Samsung on a project for the Federal Emergency Management Agency (FEMA) to create Linux-powered systems for 150 weather station sites, and it orchestrated a .Net portal project for the Federal Office of Personnel Management, a six-month-long deployment during which GTSI acted as prime contractor, along with partner Information Strategies.

"We're getting into more and more of these projects all the time," GTSI's Friedlander said. "The government needs a lot of these kinds of problems solved, so we've put more and more expert capability against our solutions aggregation business."

To continue developing this expertise, GTSI has dedicated an internal team that does nothing but evaluate new vendors and products. Vendors approach GTSI at the rate of 800 a year--about 20 a week--to demonstrate their wares. It's hard to make the cut, he said.

"We're very selective," Friedlander said. "We take to market roughly 5 percent of that total number. But you never know which one is going to be the next leader in their field, what's going to be right for the government market."

All of these efforts make GTSI more responsive to its customer base, said Friedlander, and also more attractive to potential partners.

Because that's another key element of operating in the government sector. Partnering is the name of the game, and it can be between vendors and systems integrators, vendors and VARs, integrators and VARs--and all combinations of the above.

"No one contractor has the total answer, not even the Lockheed Martins of the world," said Ray Bjorklund, senior vice president, consulting, and chief knowledge officer of FSI, a government market consultant that helps companies keep abreast of trends. "You need to flesh out your team so you can present yourself to the government as fully capable."

These days, that means fully capable of delivering complete, integrated IT solutions that help federal, state and local government agencies in their goal of becoming as responsive, efficient and cost-effective as commercial entities.