What the Soft Market Means for Government IT Initiatives.

• Author: Kavanagh, Shayne
• Position: Fiscal and Economic Indicators - Information technology

The information technology (IT) market has been on a downward trajectory for some time, and the events of September 11 have only served to exacerbate this trend. This soft market presents both opportunities and threats for government IT initiatives.

Opportunities

Governments may find substantial opportunities to bolster their IT programs in the slowed economy as IT vendors grow increasingly desperate for business (although currently the market is in more of a "wait-and-see" mode, (1) so it is not a decidedly buyer's market just yet). Because they derive much of their revenue from taxes, governments are not as sensitive to cyclical fluctuations in the economy as many private-sector industries, which live and die by the sales of goods and services. As a result, uncertain revenues in many of these industries have made them less attractive customers for the IT industry.

Governments, with their more stable revenue streams, represent a safer, more attractive market for IT products and services. Thus, the IT industry is likely to refocus its efforts on this market, giving governments substantial leverage to negotiate the best deal among increasingly hungry vendors. In fact, a leading vendor of constituent relationship management (CRM) systems recently has formed a political action group (PAC) to promote awareness of e-government enabling technology, lending further credence to the theory that vendors are looking to break into the government market in a big way. The opportunity definitely exists for governments that have the resources and are confident of the potential rewards to undertake large-scale IT products.

Government has been plagued by a shortage of critical IT personnel. The lucrative private-sector jobs that were so plentiful in recent years are now less common and less certain, making the relative security of a public-sector job much more attractive to IT professionals. Governments may be able to take advantage of this situation to bolster their sagging IT staffs. However, this adjustment is likely to be a gradual process rather than a rapid influx of new IT personnel. (2)

Threats

Unfortunately, the flagging economy is not all sunshine and good times for government IT initiatives. There are also a number of threats, not the least of which is the political feasibility of embarking on big-ticket IT projects in the middle of a recession. Although IT infrastructure may be an effective way to reduce the cost of services, taxpayers and...