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IT Services to Escape US Budget Cuts

Amid prospects of massive US budget restrictions to reduce the national deficit, the information technology (IT) service industry is anticipated to keep its vitality from FY 2010- 2015, according to mrket-reseasrch consultant INPUT. Owing to the heightened need for infrastructure consolidation to support cost savings and the increasing use of IT as a facilitator for efficiency improvement, IT services vendors can expect to escape severe decreases in contracting opportunities for this time period, the analysts said.

Although the president’s FY2012 budget reportedly calls for a 10 percent reduction in professional and technical services contracts, many of the areas being evaluated for cuts are non-IT related, such as cost benefit analysis, policy review, program evaluation, and management services. A new study released by INPUT’s industry analysts, "Federal IT Services Industry Outlook, 2010-2015," reveals that demand for vendor-furnished IT services by the US government will increase from $38.1 billion in 2010 to $51.7 billion in 2015, creating strategic openings for contractors after the release of the FY 2012 federal budget request.

“What we are seeing is a fairly minimal short-term impact in the IT services contracting sphere relative to other areas of contracting,” noted John Slye, INPUT principal analyst. “Due to contemporary demands including data center consolidation, enhancements in cyber security and national trends toward cloud computing, the IT service industry will be equipped to bear the force of federal cuts better than others.”

The report identifies key drivers such as increased demand for efficiency-saving systems, and a higher level of open communication between government and industry, where IT innovation will play a huge role. Further supporting Slye’s evaluation, the Federal Data Center Consolidation Initiative (FDCCI) issued by Federal Chief Information Officer (CIO) Vivek Kundra in February 2010, aims to decrease waste of underperforming agencies and re-allocate the savings to mission area departments that are supported by IT. The ensuing reduction will become a huge propellant for the IT marketplace, requiring an increase in the need for systems operations upgrades in addition to consulting services.

Though relatively unscathed, this segment of contracting can still be negatively impacted by certain federally defined trends. For Instance the “Cloud First” policy, despite creating opportunities to customize “light” technology and enhance shared services, will also jeopardize outsourcing amongst agencies.

Cloud Computing to Transform Federal IT

The federal IT market over the next decade will transform from a slow but stable market to one that is continuously changing, according to the market-research firm INPUT.

Federal IT will deliver continuous services that can be accessed by an increasing variety of devices connected via clouds. Likewise, the federal hardware market will evolve as it is being pressed by unprecedented change and IT developments, as well as demand to process, manage, and store ever-increasing volumes of data. Mobility, especially, will transform that segment of the hardware market and present opportunities, INPUT said in its new annual report.

The changing hardware environment will introduce unprecedented change, including:
• New buyers dynamics as cloud providers become major buyers of federal hardware
• New business models as cloud computing takes off
• New opportunities for unique partnerships presented by new sales models such as converged infrastructure, and
• Opportunities for merger and acquisition activity as vendors seek to move to high-margin area.

Of those trends and drivers, INPUT identifies four as most uncertain or volatile critical drivers:
• Data proliferation, especially due to Gov 2.0 and national security
• Centralization and consolidation of IT and data centers
• Cloud computing adoption that changes the buyer dynamics
• Dramatic increase and changes in mobility and the emergence of federal teleworking.

INPUT also outlines the likely impacts of fiscal, policy, and cultural implications on the hardware forecast. This year’s report includes IT hardware market sizing and forecasts for the Civilian, Defense, and Intelligence communities and sizing and forecasts in the major markets of end-user computing and infrastructure hardware.

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