In our newly published Federal Information Technology Hardware Market report, we forecast that demand for vendor-furnished IT hardware by the U.S. government will decrease from $28.7 billion in 2012 down to $20.2 billion in 2017, a compound annual growth rate (CAGR) of almost -7%. Our team started by envisioning what the federal IT environment will look like in 2017 and the game-changing trends that will shape that future.
In preparation for writing the report, entitled Federal Information Technology Hardware Market, 2012-2017, we looked at many trends to envision the year 2017 and the most impactful trend, by far, is the fiscal state of the federal government. Risks from China's and Japan's flagging economies (undermining their ability to continue financing our government's out of control spending), the Eurozone crisis, and continued federal revenue shortfalls indicate a tougher time annually financing federal government spending. Those threats and the ballooning national debt and interest payments on it mean that annual pressure to cut agency budgets will only intensify.
In 2014 alone, the administration is asking agencies to cut their IT budgets 10% and make suggestions of how to reinvest that money to save even more (though no sure promises to allow agencies to re-invest have been forthcoming). However, the continued agency approach of cutting spending while making only incremental changes in what they fundamentally do and how they do it, won’t meet the challenges that lie ahead. Moreover, no matter who is elected president, the administration through OMB will continue to challenge agencies to ‘Do More With Less.’
However, changing technology approaches, such as cloud computing, and eventually some degree of wholesale ‘IT-as-a-Service,’ can enable agencies to keep doing more with less. Amidst consolidation initiatives to increase efficiencies and reduce spending, agencies have been experimenting, with some degree of hard-won success, with the technology capabilities offered by innovative vendors and utilized more broadly in the commercial market. In the future, agencies will continue to quickly evolve their technology strategies and approaches and shift how they invest. With greater budget pressure, agencies will become less and less risk adverse, especially as a generation of federal IT professionals retires, and the next generation of young innovative IT professionals take charge.
In the report, our team highlights five game-changing trends that portend to disrupt and reshape the federal IT environment and market over the next five years. These trends spell the final death-knell business-as-usual, as well as strategies to morph over time for federal contractors as a whole, and hardware vendors in particular:
· Managing Data Not Infrastructure – Agencies will realigning their IT investments to focus on managing and securing data instead of managing infrastructure. The data-centric approach is anticipated to increase the agility of agency IT environments, reduce costs, and enable agencies to adopt emerging technologies more easily. Cloud computing and hardware agnostic mobility are driving this change. SOA, data center consolidation, and data management are enablers.
· Increasing Efficiency – Agencies are seeking ways to improve operational efficiency and increase employee productivity while at the same time reducing costs. Mobility and Big Data are two factors forcing this change.
· Enterprise Services – Agencies are moving from IT environments characterized by system-specific siloes to environments based on services oriented architectures that emphasize system interoperability and the ubiquitous availability of data. This transition toward enterprise services is not only breaking system specific siloes, it is also changing the way agencies invest in and utilize technology solutions. Shared services, cloud computing, and network computing are examples.
· Accelerating Innovation – Agencies are introducing standards-based common operating environments (COE), adopting data-centric policies, and turning toward services oriented open architectures to increase the agility of their IT environments. This enables them to leverage innovative new technologies, such as cloud computing, mobility, and Big Data more rapidly.
· Consolidating Acquisition Avenues – Agencies are being pushed by OMB to drive down the cost of buying commodity IT products. Agency CIOs are establishing strategic sourcing contracts or turning to GSA vehicles to consolidate commodity IT acquisitions. Agencies with long standing sourcing programs already in place are relying more heavily on these contracts, while agencies without established programs are taking steps to introduce them within the next one to two years.
To the degree and speed that these game-changing trends fundamental change the federal IT landscape, they could cause a shake-up in the federal IT competitive environment which will hit unprepared hardware vendors especially hard. If the trends bring about fundamental change in the federal landscape too slowly and the fiscal pressures continue unabated, the future scenario will be even more dire and disruptive.
Hardware vendors selling in the federal market need to adjust what they offer and how they sell to federal customers. Cloud computing, thin-client adoption, mobile computing, and enterprise services will transform the hardware market and present both challenges and opportunities for hardware vendors. Hardware vendors need to be determining and implementing go-forward strategies now that will keep them viable in the federal market into the future.
About the Report
Our Federal Information Technology Hardware Market, 2012-2017 report provides companies with a detailed view of the future federal IT hardware market and a market forecast for the next five years. It includes forecasts for the federal hardware market overall and the following technology segments:
· End-User Devices
· Storage and Peripherals
· Infrastructure (Servers and Mainframes)
· Communications and Network Equipment
It also includes hardware profiles for the top ten agencies with agency drivers in each of those technology segments. The report is designed to enhance a vendor’s federal planning process with relevant strategic analysis and provides recommendations that guide hardware vendors to maximize their market positioning to best take advantage of the changing federal IT environment.