Big Integrator, Big Contracts

They are two separate passages of legislation: One dominates the headlines, the other passes in relative obscurity. Yet both promise to permanently transform the already rapidly shifting face of public-sector IT services as we know it.

The first, the new Department of Homeland Security, combines 22 federal agencies into one department with the potential for $40 billion in contracts. That, coupled with the lower-key, but still eagerly awaited, signing by President George W. Bush on Dec. 17, 2002, of the Electronic Government Act of 2002 could pay off with big dividends. Commonly dubbed the E-Gov Act, this legislation also signifies fast-track change, as state and local customers will finally be able to access and purchase IT solutions off the U.S. General Services Administration (GSA) schedule,after years of resistance.

Those are among the developments that plant San Diego-based integrator/VAR Science Applications International Corp. (SAIC) firmly in the driver's seat. Of its $6.1 billion in total revenue for fiscal 2002, ended Jan. 31, 2002, 56 percent came from federal sales, with another estimated 3 percent produced by state and local contracts. This makes employee-owned SAIC the second-largest government player, just behind Bethesda, Md.-based Lockheed Martin, according to Input, a Chantilly, Va.-based government market research firm. Behind this effort is Ronald J. Knecht, who, as a senior vice president for corporate development at SAIC, oversees SAIC's federal, state and local sales. In a recent conversation with VARBusiness, Knecht weighed in on the major changes that have swept the government marketplace in recent times--and what they mean to government VARs.

VB: You bring a remarkable track record of government experience to the table. You were with the Department of Defense (DOD) for more than three decades before joining SAIC in 1993. You also managed the acquisition of a major command-and-control system for the DOD, then served as a special assistant in the Office of the Secretary of Defense, overseeing command, control, communications and intelligence systems. How does your experience, and that of those around you, better position SAIC in the government marketplace?

Knecht: I started in government services in 1960. When you've been at it that long, you have to understand,and this is one of the secrets to SAIC's success,the fundamental mission of a government customer. You have to communicate as a supplier to a government organization. With the explosion of the dot-com bubble, a lot of companies turned around and said, "I'm going to get me some of that federal money." They've found out, since then, that this sort of thing is quite difficult. There's a lot they don't know. We hire people who actually came out of that world of government and the military, people who have functional expertise there and can find solutions to the government customer's problems. If you only stay within the vocabulary of info-tech or some kind of other geek-speak, you're going to have a hard time attracting government business with what you're offering.

Now, with Sept. 11 behind us, everything is moving much faster, not only on a national-security level, but also on a civil-agency level. There are significant pressures to get things done. That creates even more of a premium on the ability to communicate clearly, understand the requirements and provide a solution quickly. That makes it an even more difficult environment for someone who's new to the federal space. Timely response is really the issue here.

VB: Talk about speed: On Sept. 12, 2001, SAIC had engineers in New York deploying point-to-point microwave systems to restore communications to government offices.

Knecht: Those were the engineering skills and capabilities that we already had in place and had ready to make available. But let me make this clear: You never want to look for business based on unfortunate events like this, on any kind of attack or natural disaster. But those events do happen, and, when they do, you want to make your services available. None of us on Sept. 12 were thinking, "How is this going to help my gross margins?" That wasn't on anyone's mind. We were thinking, "How can we help this country?"

But I will say this: We created a homeland-security organization within SAIC a couple of years before all of this happened. We saw that this was where the world was going. No one forecasted the exact nature of the awful attack, but we did know that the world was going to enter this area, and we knew we had to have a better organization at SAIC to be prepared. We now have a very good catalog of our capabilities. We have very good management there. And this goes back to what we were discussing earlier, about understanding our customers. They know you. They know your capabilities. My company's goal is to be in everyone's Rolodex.

b>VB: Yet you're not in a widespread cropping of state and local customer Rolos,and that's the way SAIC wants it for now. Interesting, considering that the state and local marketplace was viewed as a "next great frontier" in the late 1990s, while SAIC held firm to its bread-and-butter core of federal customers. Seems like a smart move considering the wealth of state and local governments now in serious financial situations. Why has SAIC stuck with that focus?

Knecht: The further down you go in government business, the higher the premium is on relationships and local knowledge. You have to have local presence. You have to demonstrate local capabilities. You have to have local partners. So the cost of business, when you look at all 50 states and all the numerous localities that you'd be trying to service, all of this can be quite expensive. We tend to focus on areas where we already are known. We've done some state and local criminal justice, social services, health care and telecommunications, but, in general, it's not where we're focused. It's a business issue. We don't sell a standard product from state to state. We're going to look for opportunities there at the state and local level, but we're going to be selective about it.

VB: Which is not to say that SAIC isn't doing a lot of integration solution work on multiple customer jobs,projects that involve federal, state and local customers, as well as quasi-governmental bodies. At the 2002 Winter Olympics Games, for example, you built a command center and implemented the public-safety information system in Salt Lake City. How much more of this can we expect to see?

Knecht: That involved what we're about: command and control, consequence prevention and management. When you're involved with that, it's all about training people to use the equipment so that the on-scene commander,whether it's a military person or an Olympics coordinator,can marshal the resources and be trained and prepared. We're now pursuing the same kind of opportunity for the Athens Olympics. And that's just the beginning. Since Sept. 11, the federal government now has the ability to declare all kinds of public functions as national security events, such as Super Bowls. We clearly intend to bring the capabilities that we demonstrated in Utah to these kinds of events. We are way up on the learning curve here.

Also, the U.S. military is taking on more of a support role to civilian authorities in the case of homeland protection. They're assisting with preparation for times of disaster, such as terrorism attacks. There is simply no record of all of these branches of state, local and federal government working together on something like this. So, if we work up a software package that the local sheriff's department can use to communicate with folks at the federal and state levels, and the military operations people, that's valuable. You can help them manage events and identify needs for resources. It sounds simple, really, in that it's all about people talking to each other and accessing each other's data. But it takes great engineering for the whole thing to work.

VB: As the new Department of Homeland Security is being organized, there must be a great deal at stake for SAIC.

Knecht: We're already very well-represented within all the organizations that will be coming together to create the new agency. We're well-positioned to provide support. Sure, there will obviously be some adjustments and changes. But we're already supporting the pieces and are prepared to help them make the trade-offs. And we'll be ready and happy to accommodate this need. Due to our significant presence in the component agencies and our solid systems-integration experience, we believe we can make a significant contribution to the new department.

VB: This speaks to your overall philosophy about the sales channel and how you work with vendors.

Knecht: Sure. In one sense, we are clearly a value-added reseller. We are a systems integrator that uses a lot of hardware and software from other companies. But we don't sign quota deals. I don't promise that if I sell a certain amount of dollars of a product, then I'll get this special pricing. That distorts your ability to provide the right kind of solutions to your customers. What we do provide to the vendor is our expertise. We really do know how the Army works, and how the Navy works and the many defense and civil agencies out there. We solve problems. That's different than just trying to sell storage or desktop machines, although a lot of what we do results in sales of storage and desktop machines.

VB: Beyond homeland-security-related work, what else is driving the federal marketplace from SAIC's point of view?

Knecht: The other really big play is the enterprise. I'll go out on a limb and forecast here: When agencies come up with their 2004 budgets, you'll find a lot of them will get whacked because they're not taking an enterprise view. You're going to see more enterprise efforts getting funded instead of each agency doing its own thing. The Department of Veterans Affairs is moving a lot of stovepipes into a central VA structure. That's a profound change. Over at NASA, they're doing the same thing. At the DOD, they're under way with this at the office of the comptroller to harmonize and streamline all of their financial feeder systems. We're watching all of this and keeping our finger very closely on the pulse.

VB: You're also involved with e-procurement systems for the government customer. How big do you anticipate that will be?

Knecht: We're still trying to digest the very latest news. In the literally waning minutes of the last congressional session, they passed the E-Government Act of 2002. This is big. There has always been a real itch to have a federal CIO and put some real money into the federal government for interagency products,a "let's get these things out of the stovepipes and get it together" movement. So we're now going to have an official who is responsible for e-government and e-procurement. And they authorized $350 million during the next four years to enable these kinds of functions. It will also open the GSA IT purchasing schedule to local and state governments. Before, allowing this kind of purchase access to those levels of government was legislatively blocked.

VB: What does a VAR have to do, given the changes, to exploit the public marketplace for more opportunities?

Knecht: You have to know the vendors' products. We're working harder and harder at this. I need to know what's coming out two years from now. What training do I need to better understand your offerings? If you don't know that, you'll be reluctant to support the products when you go for a project. So the vendors are reaching out more to the integrators to share this technical information. They know we're not going to propose their offerings unless we're fairly knowledgeable about them.

Remember, the majority of federal government customers aren't in leading-edge tech. They're risk-adverse people, really. They want solutions that are safe and that work as advertised. There's nothing in the contract that says the solution must be advanced and at the leading edge of the state of the art.