While government IT often has a reputation of lagging behind the times and spending valuable budget dollars on maintaining old legacy systems, the new administration seems to have set its sights on finally bringing federal technology into the modern era. This push for IT modernization along with hefty IT budgets could mean incredible opportunities for technology vendors in the upcoming months—particularly for those selling security and cloud solutions. However, the Federal Government isn’t the only part of the public sector to increase spending on technology. According to a recent Forrester Research report, local and state tech spending will be going up as well.
Forrester predicts tech spending to increase from state and local governments by about 4% in both 2017 and 2018. At $108 billion, state government tech spending makes up over half (55.7%) of the total public sector spend. If projections are accurate, their budgets will increase to $112 billion in 2017 and $117 billion in 2018. So, where is this money coming from? Favorable economic growth and increases in personal income and property values are contributing to local and state revenues to allow more spending.
And what is behind the push for modernization? On a macro level, the public sector as a whole is playing catch-up with the private sector. For too many years, government agencies have been relying on old legacy systems—often deemed a security risk due to their vulnerability to cyber attacks. With few investments in computer equipment, communications equipment, and software, the government’s spending pales in comparison to the private sector which has seen 25% growth in such investments. In fact, from 2010-2017, the Federal Government spent roughly 75-80% of its IT budget on the operation and maintenance of its outdated legacy systems, resulting in a $7.3 billion decline in modernization, development, and enhancement investments.
Recently though, steps have been taken by the Trump Administration to push government IT modernization forward. He signed an executive order creating the Office of American Innovation in March, which is charged with transforming how the U.S. uses and delivers digital services. Their responsibilities include “launching initiatives with a focus on innovation and coordinating the implementation of any resulting plans” based on information gathered from government agencies and the private sector. Recently, the House of Representatives also passed the Modernizing Government Technology Act, which establishes a $500 million fund for 24 large government agencies to use for rapid IT modernization. The bill had support on both sides of the aisle, indicating this is a large priority for both parties and is waiting to be passed by the Senate.
So, where will budget dollars be spent? According to Chris Liddell, the Director of Strategic Initiatives for Trump’s administration, 3-4% of government operations are on the cloud, presenting an opportunity for IT modernization. The transition from legacy to cloud systems is costly, but necessary as maintaining the legacy systems kept in place drags down the cost savings attributed to cloud services from 16% to virtually 0%. Switching to the cloud would ultimately reduce costs, and more importantly, increase cybersecurity opposed to the vulnerable legacy systems. Some of America’s top cloud service providers met at the White House in June to offer recommendations for government cloud usage. According to SmartProcure, it is projected the total amount of federal cloud-related investments will rise from $2.2 billion in 2017 to $3.3 billion in 2021. Some federal agencies are already embracing cloud migration such as The National Archives and Records Administration and the US Agency for International Development.
Investments in the cloud is prevalent at the state and local levels as well. The number of purchase orders from state and local governments has grown reliably from 150 POs per month in 2012 to 600 in early 2017. Forrester cites investments in cloud-based software as the single biggest driving force for increased budgets in the near future. Also, much like the Federal Government, state and local governments aren’t moving to the cloud for cost benefits, but primarily for increased security, according to Shawn McCarthy, research director for IDC Government Insights. Cloud migration offers state and local governments increased security and streamlined configuration management. Public cloud service providers like Amazon Web Services, Microsoft Azure, and Salesforce are increasingly meeting Criminal Justice Information Services and Federal Risk and Authorization Management Program standards, making it desirable for state and local governments to make the transition.
Other tech spending increases may be due in part to tech staffing particularly after President Trump’s federal hiring freeze during his first month in office. A decrease in staff can lead to increased IT spend as technology is often used to supplant the lack of personnel. Further, at both the state and federal levels, maintaining a talented staff and reliance on outside contractors will also contribute to increased spending. As software and staff costs outpace budgets, government agencies will turn to third party vendors and contractors to do the work that would otherwise be done internally. Through 2018, the amount agencies spend on hiring outside contractors could grow by up to 5%.
These spending trends yield vast opportunities for tech firms to conduct business with overwhelmed and transitioning government agencies. When it comes to selling into the public sector, a sales intelligence solution, like RainKing, can make all the difference. It goes far beyond basic data aggregation, giving sales and marketing insights and actionable, forward-looking information at their fingertips to identify key decision makers, technologies used (i.e. cloud computing), and future investment indicators (staffing requirements). Ultimately, a good intelligence platform provides a competitive advantage over the competition when vying for bids. As government spending on tech goods and services grows over the next two years, having the inside scoop is crucial to take home a piece of that enormous pie.