A New ERP Market: The Federal Government
Federal ERP spending is expected to grow 33 percent, from $5.8 billion to $7.7 billion, by 2010, according to a report by analytics firm INPUT. According to the report, in the government sector the Office of Management and Budget (OMB), and the administration's Financial Management and Human Resources Management initiatives, will be the financial drivers of these investments in the ERP market, due primarily to the Management Agenda, a presidential strategy designed to improve the management of the federal government.
The federal government will continue to invest in financial, accounting, acquisition management, human resources, supply chain, and logistics systems. At a 6 percent annual growth rate, the ERP market is growing slightly faster than overall IT spending. INPUT says the Department of Defense will continue to lead in ERP spending, growing from $1.9 billion in 2005 to $2.6 billion by 2010, primarily due to growth in supply chain management. Health and Human Services will be the highest ERP spender in the civilian market, with spending expected to surpass the departments of the Army and Navy, according to the report.
In the past the federal ERP market has been dominated by spending on large supply chain management programs in the Department of Defense. Now agency focus is shifting, placing importance on areas of financial management and human resources management in the government, according to Chris Campbell, federal market analysis at INPUT and author of the report. Campbell says the move can be attributed to the OMB's efforts of system consolidation within the government. "The shift is due to OMB's efforts in concentrating on consolidation of redundant IT systems. In reality, the consolidation effort extends beyond that as the OMB is continually reviewing budget submissions for areas where agencies can make cuts, such as supply chain management and systems supporting e-government initiatives."
The Management Agenda calls for broad organizational changes in such areas as strategic management of capital, improved financial performance, and budget/performance integration, designed to address inadequacies in federal human resources management. "These are all relevant to the solutions presented by ERP vendors and their products and services," Campbell says.
ERP providers, such as SAP and Oracle, need to follow the federal market and tailor their solutions to fit the needs of their government customers, Campbell says. "Agencies looking to support redundant or independent agency programs will need to prove necessity through business cases in order to receive funding. Thus, vendors that can demonstrate cost savings and can provide systems that can be utilized across several agencies stand a better chance of winning agency business."
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