Where Public Sector Agencies are Headed — How IT Vendors can Capture Opportunity Insights from TBR’s Public Sector SourceIT Report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

How IT vendors can capture opportunity

July 24, 2013

Where Public Sector Agencies Are HeadedTBR SourceIT℠ Reports

TBR

TBR SourceITSM Series | 7.24.13 | www.tbri.com | ©2013 Technology Business Research Inc.

Where Public Sector Agencies Are Headed

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Stuart Williams Director, TBR’s Software and Cloud [email protected]@s2_williams

mailto:[email protected]

TBR


Despite changes, challenges and constraints, public sector IT departments are spending to improve effective Mission support

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Outline FUD bullet points (Fear, Uncertainty, Doubt)

• Fear: Budgets are under increasing pressure

• Uncertainty: Populations being served are changing

• Doubt: Public sector entities are afraid , just afraid

“In the current atmosphere of dwindling budgets and increased service expectations, we are trying for improved services, better resolutions with greater transparency and accountability at all levels of the workflow.”

— IT Director Changing Demographics

Constrained Budgets

New Regulations and Mandates


$38.1 billion in ‘14 vendor addressable IT spend

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IT vendors can win business by helping large public sector entities modernize for mission effectiveness

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Public sector entities are investing in application modernization, data center consolidation and cloud-based applications.

IT is driving a long-term revolution in how public sector entities use technology to address their missions.

While vendors cannot ignore the highly structured purchasing process, key initiatives have executive sponsorship outside standard procurement processes.


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Cloud, mobile, big data and Web technology adoption is reshaping how public sector entities serve and achieve their missions

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“Technology presents many opportunities for us to deliver better services to our citizens. More and more, people want an immediate, specific, casual and personalized service experience. People are looking to technology to find that experience. We, as a government entity, are left trying to understand the demands of a Web 2.0.”

— IT Manager, Public Sector, Large Enterprise, N. America


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Public sector IT wants to enable, rather than hinder, missions

Business Summary What Respondents Reported

• Economic concerns and recession recovery

• Demographic changes• Budgetary restrictions • Growing security concerns• Emerging IT trends in data

center consolidation and cloud adoption

External forces:

Public sector entities are reacting to economic and budgetary factors by investing in mission-critical solutions and data center consolidation to improve internal efficiency and effectiveness.

How public sector entities react:

What public sector entities see:

• Growing need for internal efficiency and effectiveness while containing costs

• Emerging risks surrounding security as solutions move to nontraditional cloud deployments

“The current infrastructure is unnecessarily complex and should be simplified to reduce costs and assist the sustainability of IT operations. IT is somewhat fragmented into multiple databases, stand-alone applications and technology projects. We are doing these projects to have a more integrated approach and IT governance within the municipality that should be centralized and empowered to enforce policy.”

— IT Manager, Public Sector, Large Enterprise, N. America

SOURCE: TBR N. AMERICA, LARGE ENTERPRISE PUBLIC SECTOR REPORT, SUMMER 2013


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Business Applications

26%

Industry Applications

9%

Productivity17%

BI and Analytics16%

Database and Middleware

15%

Systems Management

16%

Overall IT Project Priorities, by Workload Category (Total % Mentioned)

SOURCE: TBR LARGE N. AMERICAN PUBLIC SECTOR SOURCEIT STUDY; N = 256

Multiyear project timelines require vendors become involved early in the process to best capture opportunity

While public sector applications only make up the smallest share of opportunity, those that are adopting have higher budgets relative to other categories.


“Priorities were set last year and most project timelines are due for completion within 18 months, so we are just now starting to review for 2015 and beyond.”

— IT Manager, Public Sector, N. America

Respondents: Workload Priorities for Discretionary IT Spending


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5.0% cc

95.0%

While the IT spending agenda is shaped by the largest units, the majority of spending happens in smaller public entities Respondents: Planned 2014 IT Budgets

$22M 0.8% $1.76M

$2.5M2.2%$55K

Entities with 10,000+

employees

Entities with 1,000 to 9,999

employees

Average 2014 YTY Increase

Average 2014 Total IT Budget

Average 2014 IT Budget: All Entities

$14.3M

Percentage of 3,500 in Segment


68% of IT spending

Total IT budgets include:• Business Applications• Industry Applications• Productivity Applications

• BI and Analytics• Database and Middleware• Systems Management

• IT Infrastructure • IT Professional Services• IT Overhead and Personnel

NISTFedRamp

FISMACode of Federal RegulationsFederal Agency Standards


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Public sector IT priorities for mission-specific applications and data center consolidation are shaping investment 2014 TBR SourceIT Large N. American Public Sector Model — IT Spending and Key Priorities

What vendors need to know:1. Though efficiency and

effectiveness are driving IT investments, balancing cost control and security are major considerations for public sector IT purchases.

2. Back-office solutions (such as BPM, accounting and finance) are leading workloads considered by public sector agencies.

3. In addition to traditional IT investments, public sector budget allocation is growing for mission-specific initiatives and applications.

Optimize IT:• Accounting and Finance• Business Process

Management• Security• Information

Management and Database

Key Priorities:• Mission-specific Custom

Applications• Tax/Revenue Systems• Citizen/Business Self-

service• Electronic

Benefits/Payment Systems

Total IT Spend:$49.1 billion

Vendor Addressable Spend: 77.6%,$38.1 billion

Personnel and Overhead:22.4%,$11 billion


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Business Applications, $5.6 billion

Industry Applications, $3.5 billion

Productivity Applications, $3.8 billion

BI and Analytics, $7.9 billion

Database and Middleware, $5.8 billion

Systems Management,

$4.3 billion

Infrastructure, $6.3 billion

Professional Services, $7 billion

Public Sector: IT Spending in 2014


15%

9%

10%

5%

15%11%

16%

18%

Long planning cycles increase the importance of capturing the front-end, exploratory work that shapes road maps for vendors 2014 Vendor Addressable Opportunity Breakdown

Discretionary Spend in 2014 is$14.2 billion

Fixed Spend in 2014 is $23.9 billion Vendor Addressable Opportunity is $38.1 billion

“Being a part of government, we have everything planned and have budgets decided for everything one year in advance, so we do more fixed spending than discretionary spending.”

— Director, Public Sector, N. America

WorkloadsDiscretionary IT

Spending in 2014Business Applications $2.1 billionIndustry Applications $1.4 billion

Productivity Applications $1.5 billionBI/Analytics $0.7 billion

Database and Middleware $2.1 billionSystems Management $1.5 billion

Infrastructure $2.4 billionProfessional Services $2.4 billion

+1.5% YTY

+0.4% YTY

+1% YTY

+3.3% YTY

+1.9% YTY

+0.7% YTY-0.2% YTY

0% YTY


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$14,194

$14,356

-$4 $15

$5 $0 $17

$40

$35

$14 $6 $17$17

$14,100

$14,150

$14,200

$14,250

$14,300

$14,350

$14,400

2013

Busi

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Appl

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ons

Indu

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Appl

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ons

Prod

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s

BI/A

naly

tics

Dat

abas

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dM

iddl

ewar

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Syst

ems

Man

agem

ent

Infr

astr

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re

Prof

essi

onal

Serv

ices

IT S

ervi

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IT P

erso

nnel

Ove

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2014

IT S

pend

(in th

ousa

nds)

Projected Average Change in IT Spending for Public Sector 2013–2014 TBR


Respondents: 2013-2014 Bridge: IT Spending Growth by CategoryAverage 2014 IT Budget: $14.4 million

Infrastructure, systems management and investments in public-sector-specific applications lead the way for vendor opportunity



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Demonstrating the ability to help agencies evolve their delivery and execution models helps vendors win key workload projects Respondents: Hotspots and Top-of-mind Software Vendors

Top Targeted Workloads: Broadly Driven Largest Budgeted Workloads: Driven by IT

Area Average 2014 Project Budget

Top-of-mind Vendors

Area Average 2014 Project Budget

Top-of-mind Vendors

Mission-specific Custom Applications

$1,318,000 Microsoft, Oracle, IBM, Adobe

Productivity Applications

$1,782,000 Microsoft, Citrix

Tax/Revenue Systems

$460,000 SAP, Microsoft, IBM

Email and Messaging

$1,451,000 Microsoft, IBM, Oracle

Citizen/Business Self-service

$419,000 Adobe, Microsoft, HP

PC Operating Systems

$1,359,000 Microsoft

Electronic Benefits/Payment Systems

$593,000 SAP, Microsoft, IBM

Mission-specific Custom Applications

$1,318,000 Microsoft, Oracle, IBM, Adobe

Top Priority Workloads Largest Core IT Workloads


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Vendors that can help public sector entities improve processes without sacrificing cost and security are best positionedRespondents: IT Spending Transitions

“Public sector organizations are increasingly driven to improve operational efficiency, share information and integrate processes across operational and jurisdictional boundaries while maintaining control over costs. We are also focusing on establishing a secured communication network between our system, and this change will be regarded as the highest priority to provide required benefits for the citizens.”

— Director, Public Sector, Large Enterprise, N. America

Key Investment Drivers• Integrating and consolidating electronic

information• Improving internal operation efficiency• Reconfiguring IT to take advantage of cloud

and mobility

Key Consideration Factors• Cost control• Security • Budgeting• Legacy system upgrade/replacement

+1.1% YTY vendor addressable market growth

Investment Areas• Mission-specific applications• Information management • Systems management• Security


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Respondents: IT Budgets by Customer Character

4% 48%

45% 4%

Aggr

essi

ve

Highly Centralized with IT

IT A

dopti

on A

ggre

ssiv

enes

s

Centralization of IT Spending

Highly Distributed Across IT and LOBs

Late

Ado

pter

Structured Go-getters

Laissez-faireBureaucrats

Empowered

Empowered public sector entities include companies that are highly aggressive adopters and highly distributed across IT spending.Structured go-getters include companies that are highly aggressive adopters and have a highly centralized approach for IT spending.Laissez-faire public sector organizations are late adopters of technology, and their IT spending is highly distributed.Bureaucrats include companies that are late adopters and have a highly centralized IT spending approach.

Average 2013 IT Spend:

$14.8 million


$9.5 million


$15.8 million


$12.9 million

There is a strong correlation between IT adoption and centralization of spending in the public sector; late adopters tend to have highly centralized spending while aggressive adopters have distributed spending.

Distribution of Respondents by Character

The largest opportunity in the public sector space is with aggressive IT adopters with decentralized IT spending behavior


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Path to Purchasing: Key Decision Makers

C-Suite and municipality leaders oversee final purchase decisions, with greater middle management influence in Empowered types

Purchasing Scenarios Buying Criteria Purchase PlansKey Decision Makers Top-of-mind Vendors

“The IT department or the IT administrative office works on the decision making, but the whole thing starts from the departmental level. First there is a requirement, then it is put forward to the IT team, which further analyzes how the issue can be addressed.”

— IT Specialist, Public Sector, Large Enterprise, N. America

Key Decision Makers

Board of Directors,C-Suite

Federal/MunicipalityLeaders

Search Relevant Solutions/Vendors

(IT)

Identification of Problem

(Department Level)

Short-listing and Solution Evaluation

(IT Department)

Bureaucrats

Empowered

Bureaucrats’ IT purchase decisions are more structured and top-down driven than Empowered purchases.

Though budgetary decisions are ultimately made in the C-Suite, Empowered purchase decisions are heavily influenced by lower levels of organization.


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TBR SourceITSM Series | 7.24.13 | www.tbri.com | ©2013 Technology Business Research Inc. 19

Stuart Williams Director, TBR’s Software and Cloud [email protected]@s2_williams


Questions?


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TBR’s SourceIT Reports enable clients to more effectively capture business across specific customer segments

1. Understand and capture opportunityby comprehending buyer behavior in specific segments.

2. Improve GTM effectivenessby improving sales and marketing investment effectiveness.

3. Improve positioningby effectively targeting customer needs and managing competition.

SourceIT℠ ReportValue

Identify opportunities

Understand key business and IT strategy opportunity

drivers

Capture sourcing and budgeting opportunities

across the stack

Target decision makers

Understand purchasing scenarios

Target key decision makers

Improve positioning

See your position in a competitive landscape

Manage positioning; Relationships vs.

opportunity

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TBR SourceITSM Reports

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TBR: SourceIT Public Sector Report | 2013 ©2013 Technology Business Research, Inc.

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Table of ContentsTBR SourceIT Report

3 SourceIT Methodology and Coverage

8 Executive Summary• Opportunity• Public Sector Organizational Behavior• Vendor Selection

17 Market Opportunity• Total Market Opportunity• Average IT Budgets in 2013• Fixed Spending Priorities• Discretionary Spending Priorities

25 Discretionary Spending Across Workloads• Workload Priorities• Opportunity by Workload

51 Public Sector IT Purchasing Behavior• Investment Drivers• Paths to Purchasing for Key Priorities

67 Key Workload Case Studies• Mission-specific Custom Applications• Tax/Revenue Systems• Citizen/Business Self-Service• Electronic Benefits/Payment Systems• Opportunity Mapping

88 Competitive Landscape• Purchasing Relationships• Vendor Footprint by Workload Category

for Fixed Spend• Vendor Footprint by Workload Category

for Discretionary Spend• Footprint by Workload

91 Appendix

100 About TBR

Large N. American Public Sector Segment

TBR


Public Healthcare

32%

Federal or State Agencies

36%

DOD Services5%

Public Transportation

5%

Public/Private Education

19%

Professional Association

2%Other

1%

Respondents by Public Sector Type


The 256 large N. American public sector entities are large federal or state agencies, education and public healthcare providers

SourceIT Large N. America Public Sector Research Demographics and 2013 IT Spending

Public Sector Entities>950 employees or >$1 million in total IT budget

Does not include DOD combat and warfare systems

Large N. American Public Sector Definitions (Qualifications for Study)Included Industry Subsegments Excluded Industry Subsegments Size Definitions

Federal & State Agencies, Services, DOD Services, Public Transportation, Public &

Private EducationDOD Combat/Warfare Systems;

Aerospace>950 employees or

>$1 million in total IT budget


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About TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators.

Serving a global clientele, TBR provides timely and actionable market research and business intelligence in formats that are tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996.

To learn how our analysts can address your unique business needs, please visit our website or contact us today.

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This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.


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Where Public Sector Agencies are Headed — How IT Vendors can Capture Opportunity Insights from TBR’s Public Sector SourceIT Report

Technology

headedtbr

data center

standard procurement

public sector

public sector

tbr sourceitsm

highly aggressive

technology