The Public Sector: A Slow, Profitable Market

What are the skills necessary for serving the technology needs of governmental organizations?

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For resellers, serving the public sector is a challenge that requires patience, routine follow-up, patience, flexibility, patience, dedication, and, in case, it wasn't mentioned earlier, patience, in order to succeed. There is no doubt that the biggest hurdles facing a reseller or consultant who serves this market are the long close cycles and the rigorous sales processes, according to Maureen Williams, president of Applied Business Services, a Gaithersburg, Md.-based VAR that specializes in government and nonprofit clients.

"In the public sector, there are more approvals to get and the decision-making process often stretches out. The bidding process is lengthy and complex, and generally requires a formal request-for-proposal process," Williams says. "Once the bid has been won, the implementation cycle starts, and this is also more complex for the public sector. Patience and routine follow-up are keys to success."

Public Sector Mirrors the Private

Partner Insights

In some ways, public sector companies aren't all that different from their private sector counterparts. They have limited budgets and need to get results from what they do spend.

And like private companies, governmental units aren't just in one market. They have specialized needs that can be met by VARs seeking to develop niches.

A collaborative research project for Ontario dubbed a Municipal Management Needs Assessment, revealed much about their IT needs, and mirrors many of the issues facing American companies.

Issued in June, the report states that municipal managers "are looking to technology as a strategy to improve communications and customer service, make information more accessible, and achieve operation efficiencies. However, technology changes rapidly and can be costly to implement. In smaller municipalities, managers have noted that they cannot afford to hire IT experts, and as a result there is limited ability to address their information and technology needs."

Furthermore, based on a survey of 225 participants representing a cross section of the municipal management community, the report found more than half (54 percent) identified managing information and information technology as a high priority of focus over the next five years. The survey also found that nearly half (47 percent) of respondents believe managing information and information technology is an area that they will need facts or advice on from external sources.

Maureen Williams, president of Applied Business Services, a nonprofit software reseller based in Gaithersburg, Md., believes that resellers and consultants will be able to better differentiate themselves from the growing competition by focusing on a niche, such as utilities software.

"Find a niche that hasn't been saturated and find a unique way to handle that niche," Williams advises. She believes that, going forward, the industry will see an increase in the development of applications designed to address specific niches.

Niche products that ABS has created include a piece-rate payroll system and a laundry management system for community rehabilitation providers, and a .Net financial application to interface with Traverse financial reporting among hundreds of schools in Maryland.

Since its inception 25 years ago, the company has installed more than 1,400 not-for-profit financial software systems. ABS, a reseller and developer of the Open Systems Traverse and Sage product lines, is also a National Certified Training Center for Sage MIP Fund Accounting software.

The optimum close cycle for the public sector is about six to eight months, Williams says, compared with three to four months for not-for-profits and one to two months for commercial businesses.

That means it is critical for resellers to keep several projects in the pipeline and make good use of CRM tools to track communications that likely will stretch over a long period, and also to effectively follow up with clients. Staying in frequent contact with prospects and clients "is imperative," Williams continues.

While resellers and consultants serving this market may find it difficult to deal with the longer sales cycles, those who gain the skills and persevere stand to benefit because sales volumes can be quite attractive. A large school district, for example, may spend more than $100,000 on one project.

"If you can get good at serving the government market, the deals are larger and they often will reward with repeat business [such as upgrades and services]," says Elisabet Hardy, senior product manager for Sage FAS Gov and Sage Nonprofit Fixed Assets at Sage Software.

Not only is the sales process rigorous, but it can also present quite a learning curve for newcomers, says Dave Haworth, director of sales for Boise, Idaho-based Cougar Mountain Software.

"You need to be centered on this sector if you are to be successful," says Haworth, who notes that about one-third of Cougar's business comes from local and state governments.

While specific requirements will likely vary depending on the level of government-whether state or local-and the area in which they operate, Haworth says resellers must not only demonstrate a strong know-how in reporting, given the strict government reporting requirements, but also will benefit from aligning themselves with a certified vendor.

For example, state and local governments have both hardware and software needs, so a reseller highly skilled in software would benefit from aligning with one who handles hardware. It is ideal if a vendor is able to align themselves with someone local, so they can quickly address any IT issues that may arise.

To help its channel, Cougar Mountain has created an online community where partners can share ideas and discuss issues. The company also offers on-site training in Boise, which is a weeklong course that provides an overview of such topics as client requirements and software functionality.

Measuring Potential

How strong is the market? The moves made by some of the leading vendors show the strength of the interest they see in the public sector.

Three years ago, Open Systems acquired a not-for-profit package for Traverse from ABS. That application brought capabilities for serving governmental organizations to the Traverse line. Then, late in 2004, it hired Linda Shillingburg, who had worked with Sage's MIP line for years, as its director of business development NFP.

Microsoft is also a relatively recent entry in this part of the nonprofit world. Although it had resellers who sold to nonprofit clients, it lacked some crucial tools until two years ago, when it introduced Dynamics GP 8.0. While the company doesn't have a separate nonprofit accounting line, it added key modules, such as Encumbrance Management, Commitment Management, and Grant Management, which fit into the for-profit Dynamics line.

Since then, Microsoft has seen increasing interest in the segment by its reseller channel.

According to Sig Behrens, director of business solutions for the U.S. sector at Microsoft, there are about 4,000 Microsoft resellers handling the Microsoft Dynamics ERP and CRM products. Of those, about 250 work the public sector, compared with 20 just a few years ago. Behrens estimates that number will hit 500 in the next 24 months.

Those dealers have good reason to be optimistic about the market's potential. According to Gartner data provided by Sage Software, state and local governments will spend $44.24 billion on IT goods and services in 2005. At a growth rate of 7.5 percent, this figure will rise to $54.96 billion by 2008.

One reason the public sector offers great opportunity is that such organizations are increasingly required to do more with less (and will need technology solutions to help them achieve greater efficiencies), and in the next decade much of the workforce will reach retirement.

That trend is the "greying of government" says Ron Budreau, president of Diamond Municipal Solutions, an Edmonton, Alberta-based company that markets its own line of municipal and utility accounting application software.

"Based upon the most recent and municipal-specific statistics I've seen, some 40 percent of us will retire within the next 10 years (25 percent in the next five)," Budreau wrote in a recent report for the Municipal World.

Budreau says that this represents an opportunity for those serving the public sector, because it will make room for a new workforce that is younger,highly tech-savvy, and likely to see a need for new technology.

The Right Way

That's why the appearance of necessary tools from major vendors is coming at a good time.

Microsoft's introduction of such modules as Encumbrance Management is particularly important to consultants, resellers, and end users. Similarly, Sage Software has the MIP Fund Accounting Encumbrance module to reserve budgets for planned expenditures and financial commitments.

Sage also addresses other needs through its Specialized Business Solutions unit. Products offered include the Sage FAS Gov Fixed Assets product line, whose applications help governmental organizations account for inventory and report on their fixed (capital) assets. FAS Gov Asset Accounting helps governments and schools comply with Governmental Accounting Standards Board Statements 34 and 35, which directly relate to the management of fixed assets.

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