XChange Public Sector: Large Systems Integrators Under Pressure

The size of federal IT contracts is shrinking, causing large systems integrators to push downstream and compete on projects that just a few years ago they wouldn't have touched.

That trend means more competition for small and midsize government solution providers, but it could also spell opportunity for those smaller companies to partner with larger ones -- providing they can demonstrate value to the big guys, said a panel of system integrator executives at the XChange Public Sector conference in Charlotte Thursday.

The federal government is moving away from large IT programs because the funding of those programs has become a challenge, said Rick Dansey, senior vice president of CACI's Civilian Solutions Group.

[Related: Gartner VP Predicts Steep Falloff In Federal IT Spending In 2013 ]

"The funding is easier for smaller programs. It takes some of the big integrators out of their comfort zone. The big buys are used to going after $500 million deals. That's what they do. Now they're down to $20 million to $25 million deals," Dansey said.

Smaller projects also have less risk, less oversight and can be completed more quickly, which draws the interest of large systems integrators, Dansey said. But the large SIs also know that small businesses that regularly compete in that space have relationships and can be more nimble, so the systems integrators are looking to partner up with the SMB solution provider community, he said.

Allison Patrick, vice president and director of business development for the Civil Gov Group, SRA International, said the name of the game in the federal space has become market share. With federal budgets declining in the civilian space, the competitive landscape has been leveled, she said.

"It's just a market share grab. The way we think about it is we have account teams and whoever has the smartest, hardest working account teams is going to win going up against those opportunities," she said. "We had been mandated to fill pipelines with $50 million or above [deals]. We're seeing the number of those opportunities shrink considerably into more manageable bites."

Gene Zapfel, group vice president and member of the federal executive committee at Unisys, admitted to the crowd of solution providers at XChange that everything the company chooses to bid on now, "we have to eat someone else's lunch," but adds that Unisys is also getting its lunch eaten too.

NEXT: VARs Need To Define Their Skills To Systems Integrators

The good news for smaller solution providers is that a percentage of government IT projects requires them to be rewarded to small businesses, which the larger systems integrators often leverage as subcontractors to win the deal. There's legislation to increase the percentage of deals that will require small business companies too, executives said.

With that in mind, systems integrators are paying more attention to smaller VARs as partners. Unisys' Zapfel noted that Unisys is pursuing a big defense deal and his company's proposal includes 20 partners. "We started with 110 companies and whittled down the list to who adds value," he said.

SMB solution providers should start to clearly define their skills and niche in the market to attract the attention of large systems integrators for possible partnerships, said SRA's Patrick. In addition, VARS should be able to demonstrate strong relationships with their customers and the willingness to create long-term relationships with the integrators beyond just one project, she said.

"We're looking where execution must be flawless. Smart small businesses will begin to leverage that with large systems integrators. They may put you on an existing program right now, but we want to build a strategic relationship with you. And as soon as you begin to have intimacy within a customer environment, your value with larger SIs skyrockets," Patrick said.

Zapfel laid out the criteria that Unisys used to pare down the integrator's list of partners from 110 to 20 in the defense proposal: quality of service delivery, intimacy with customers and visibility with the right people within the organization. For example, if you're marketing to the data center operations manager, you probably aren't of value to a systems integrator that would be looking to target a management layer two levels up, Zapfel said.

"If your company is not known to those people, you are not adding the kind of value you need to add. We want our team to be filled with people that customers recognize," Zapfel said.

Woody Hall, vice president of IT strategy and CIO for General Dynamics Information Technology, added that you don't need to target top-level management because those people usually aren't making the IT decision anyway.

"It is hard because when you're dealing with a big organization that could have a dozen or hundreds of people who operate at that level [you need to target]," Hall said. "You need to know the players, and if I know you and I trust you, I'll want to work with you."

NEXT: Don't Try To Look Like A Large Integrator

General Dynamics' Hall acknowledged that the first engagement is the hardest one. It's a Catch-22 situation because integrators have to learn to trust you to work with you, but they can't trust you if they haven't worked with you either.

"You have to find a reason to make sure you're on our team. Usually, you have a footprint where we want to have one, or you have a unique product or service and have a great execution reputation," he said.

CACI's Dansey identifies four levels of client engagement: target, which means going to see a client that doesn’t know you; tentative, which refers to when a client is aware of you but you’ve not worked together; transactional, used to describe clients with whom you’ve occasionally worked; and trusted, which refers to when the client comes to you for work.

"[Trusted] is where I'm looking for from the small business [VAR] community. If I add you to the team, I want you in the top category," he said.

The systems integrators executives agreed that VARs looking to leverage them to expand their government business should figure out what you do that no one else can do and do the best at that.

"I don't encourage you to try to look like a large integrator," said SRA's Patrick. "Keep looking like you do now, cultivate the space and do what you do really, really well."