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pany couldn’t make its cost struc- ture competitive with pure-play IT businesses.
Signs of growth
One question in particular has lingered for years about the Top 100 and the government market in general: When will we see a return to growth? The market has been contracting for nearly six years, but the 2017 Top 100 gives a strong indication that the downward pressure has lessened. In fact, we are seeing an uptick.
The 2016 Top 100 companies cap- tured an aggregate of $97.2 billion in prime contracts, but the 2017 group hit $99.8 billion. That is still a long way from the 2011 peak of $132 billion, but it is a welcome sign.
More important than the numbers, however, are what the companies are doing. The mergers and acquisition activity is obvious, with the Lockheed/ Leidos deal topping the list. But there’s also the combination of Hewlett Pack- ard Enterprise’s IT services business with Computer Sciences Corp., creat- ing a new entity called DXC Technol- ogy. That firm focuses on exploiting the government’s need to modernize IT systems and digitize processes.
Many other companies on the Top 100 have also incorporated IT mod- ernization into their growth strategies. They include Booz Allen Hamilton, CACI International, CGI Group, IBM, Accenture, SAIC and CSRA.
One of the more interesting trends in the market is the adoption of com- mercial technologies by the govern- ment and contractors. After decades of rhetoric about using off-the-shelf technologies, the government seems to be embracing them. The Defense Department famously opened the
Defense Innovation Unit Experimen- tal in Silicon Valley to forge a closer bond with new technology companies.
Government contractors are also on that path, with many forming close alliances with such well-known names as Amazon Web Services, Microsoft Azure, ServiceNow and Salesforce. And they are actively looking for tech- nologies that address issues related to security, mobility and analytics.
The next big technology wave will come through automation, machine learning and the internet of things. Top 100 companies are making invest- ments in those areas through inter- nal research and partnerships. IBM, Cisco and Microsoft see them as ripe for growth and a way to differentiate their offerings.
Budget priorities
Dark clouds still hang over the market, however, and companies are still mak- ing major adjustments — namely dives- titures — to reposition themselves. The most recent example is Harris Corp.’s shedding of nearly $1 billion in revenue by selling its IT services business.
The federal budget continues to be an issue because each year Congress and the White House spar over appro- priations. It has been worse this year with the change in administration, so the government operated under a con- tinuing resolution for the first half of the fiscal year. At the same time, there is something of a leadership void at many agencies as they await politi- cal appointees that have been slow in coming.
As a result, many agencies are in a holding pattern when it comes to spending on new initiatives — a con- cern significant enough that it’s begin- ning to be mentioned in some firms’
Wall Street earnings calls. The expec- tation of many industry executives, however, is that the situation will ease.
Next on the budget horizon is the fiscal 2018 budget based on President Donald Trump’s blueprint, which calls for deep cuts at civilian agencies such as the Environmental Protection Agen- cy and State Department and large increases for defense.
Industry executives, of course, know that Trump’s blueprint will not be what Congress finally passes, but it remains an important statement on spending priorities. So depending on where a company’s business lies, the just-released fiscal 2018 budget could be cause for either optimism or alarm.
Still, the expectation is that even agencies that experience budget cuts will be looking for IT solutions to help them operate more efficiently and effectively.
After years of across-the-board cuts, the market is taking a positive turn for industry. Despite uncertainty about budgets and spending, the opportunity to help agencies adopt new technolo- gies and digitize their business opera- tions will grow.
We see that in the M&A activity. We see that in hiring sprees at firms like Deloitte, where they are recruiting executives with deep domain exper- tise. We see that in companies such as Engility, which has turned its back on LPTA contracts and is focusing its growth on delivering outcomes to cus- tomers instead of the lowest price.
Those trends have been building for several years, but this year’s Top 100 list suggests we might be at an inflec- tion point. And it certainly reflects many of the positive technology and management drivers in today’s federal market. n
WashingtonTechnology, a sister publication to FCW, covers all the ins and outs of the IT contracting community. Learn more at WashingtonTechnology.com.
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