Longtime Technology Company Beefs Up Federal Business
A series of acquisitions fills in the franchise.
Running a key sector in one of the world’s largest information technology companies may not seem to have much in common with automobile repair. But one corporate leader draws from that discipline to drive a group that has undergone a complete overhaul since a serious breakdown little more than a decade ago.
As a high school junior in her native
Altman loved her sleek machine, which was built by American Motors and came with a 290-cubic-inch V8. She enjoyed tooling around town in a car known for its aerodynamic look and raw horsepower.
Unfortunately for Altman, just weeks after she bought the vehicle its engine blew. So, Altman took matters into her own hands. She removed the 290 engine and rebuilt a 390-cubic-inch engine for it in her parents’ basement.
Altman would be the first to say that her foray into auto mechanics was not a straight line to success. She got the engine back into the car only to discover she had installed a piston ring upside down.
Out went the engine for another teardown and rebuild. The car ran well, but the engine was awfully tight. She had over-bored the cylinders to add power to the engine, effectively converting the 390 engine into a 401-cubic-inch behemoth. But with all the extra torque, the engine kept burning out the starter.
Altman adapted; she installed a new starter with plenty of power—it had come from a heavy-duty truck. With all that force, the white roadster was virtually a race car and had a black racing stripe down the side that proudly proclaimed that it came equipped with a “390” under the hood.
“It was an amazing beast of a machine,” Altman recalls. “It was a lot of fun.”
For Altman, the anecdote is more than a little fitting. A mother of two who loves horseback riding and classical music, Altman serves as the managing director of IBM U.S. Federal, a thriving enterprise that she and the company have steadily overhauled in recent years.
“We feel we bring a unique value to the marketplace because we aren’t just software; we aren’t just the world’s leader in hardware or the world’s largest services organization,” Altman says. “We bring all of that together with $6 billion in research and development every single year to serve our clients. We think that is quite different than any other player in the market.”
Furthermore, IBM recently became the world’s second-largest software company behind Microsoft. Beginning in 2001, Big Blue spent more than $10 billion to acquire 41 software companies, thus surpassing former Number 2, Oracle Corporation.
That beefed up software presence helps IBM serve the federal sector, Altman adds. In addition, the company acquired Pricewaterhouse Coopers in 2004 for $3.5 billion, adding to IBM’s government services portfolio. Last year, IBM paid $1.3 billion for Internet Security Systems, which has a strong presence in Internet protection for government.
Ironically, along the way IBM’s federal business hit more than a few bumps in the road. Indeed, as IBM fell on hard times in the early 1990s, the company that had served the federal market virtually since the firm’s inception in 1896 jettisoned its government business. IBM sold its Federal Systems Division in 1994 to Loral Corp. for a badly needed $1.5 billion.
Altman had joined the division just two years earlier, and she found herself helping with its divestiture. After that she took on several assignments at IBM’s headquarters in
She later became a sales manager supporting all
Meantime, as government information technology (IT) budgets ballooned in the 1990s because of breakthroughs in hardware and software combined with concerns over the Year 2000 problem (Y2K), IBM wanted back in the federal arena. As IBM picked up more federal business, Altman returned to
Two years later she was named the unit’s managing director as IBM formalized the new group. Today, Altman’s outfit employs 4,000 people and serves what has become IBM’s single largest client. The company doesn’t disclose federal revenues but says the work remains nearly evenly divided between defense and civilian agencies, with federal spending on IT estimated to total $65 billion last year.
Citing industry analysts, a Washington Post article recently published that an estimated $2.7 billion of IBM’s $91 billion in revenue in 2005, the last year for which figures were available at publication, came from federal operations. If it were a separate company, IBM U.S. Federal would be No. 17 on the newspaper’s list of 200 top public companies in the
“We have come a very long way since the time we sold off that division of IBM,” Altman says. “Essentially, we have built a best-in-class services and integration organization. We have spent the last five years assuring that we have certified and developed technologies that meet government requirements.
“Frankly, when you serve the federal government there are many elements that you look at. But part of it is, ‘Do I have deep domain knowledge and expertise?’ And the answer is, ‘While IBM sold that piece back in 1994, we never left the market.’ We have continued that 100-year history of serving this client.
“We have many, many people in our organization who have come from the federal government, having served their careers there. We have many others who have only served the federal government in an IT capacity their entire careers working for IBM.
“And we continue to acquire companies that have very, very strong presences in this market. So, when you look at the success of IBM Federal, in the last six years we have tripled that business in this marketplace.”
IBM Federal can claim several success stories in recent years. For the U.S. Defense Department, the company developed the Multilingual Automatic Speech-to-Speech Translator (MASTOR), an on-demand translator that is a digital linguist (SIGNAL Magazine, November 2006). This translation software is mounted on a handheld device or laptop, enabling
The Defense Information Systems Agency (DISA) awarded IBM a collaboration services contract last July valued at $17 million. The work calls for IBM to provide instant messaging, low-bandwidth text chat and Web conferencing to Defense Department users. IBM officials say the work plays a key role in DISA’s Net-Centric Enterprise Services project to provide one consistent service for collaboration that can be used by personnel throughout the department. These services will enable real-time information sharing through an on-demand IT services structure, based on open standards and a secure hosted environment.
The Department of Homeland Security (DHS) last June selected IBM as one of several large companies involved in the multibillion-dollar Eagle contract. The work will help the DHS consolidate its IT environment and improve efficiency and effectiveness. This is a critical contract to the DHS in that it provides a vehicle for services and technology sales. The initial contracts run for a period of five years and may be renewed. Total spending under the project could reach a cap of $45 billion.
The company also was awarded the U.S. Navy’s Enterprise Resource Planning (ERP) Convergence program. Begun in 2004, the convergence of several pilot programs into a Navy-wide enterprise resource planning program will involve more than 80,000 users. As such, Navy officials are adopting best business practices with commercial off-the-shelf (COTS) software solutions. This ongoing, multiyear effort seeks to link acquisition and support operations that serve the Navy’s 500,000 military and civilian personnel, more than 280 ships and submarines, and 4,000 aircraft. According to IBM officials, through major pilot programs originally commissioned in 1999, the Navy already has realized significant improvements in such key processes as finance, maintenance and supply chain management.
IBM estimated last November that the U.S. Army will save taxpayers about $1.3 billion annually in administrative processing costs by adopting the Forms Content Management Program. To improve efficiency in a fast-changing world, the Army chose to re-engineer its processes with IBM Workplace Forms and other IBM middleware, hardware and software, plus the program and technical analysis provided by another vendor, Enterprise Information Management. The Army has an inventory of more than 100,000 different types of forms used by about 1.4 million Army personnel around the world. Many of the forms will be converted to an e-forms process that enables digital signing, as well as transmission and approval of forms over the Internet.
Actually, the importance of the federal government in IBM’s operations is somewhat understated. Consider that the company also maintains relationships with most of the major defense and aerospace companies, which in turn rely extensively on federal contracts.
Observers say whether IBM can continue growing its federal business at its recent compound rate of 12 percent per year remains an open question, as soaring federal deficits create pressure to slash government spending. But Altman remains upbeat about the future of IBM’s federal operations.
“What is exciting is what is so challenging,” Altman shares. “You see this; everybody in this country sees the challenges that this government faces given the incredible budget constraints, given the challenges of what’s in front of us in terms of our baby boomer generation and the demands on future entitlements. Whether that’s Social Security or whether that’s home care, you know we are placing a tremendous burden on this country. It is all looming ahead of us.
“For the government, things like knowledge management are going to be absolutely critical, as nearly half of our federal government work force walks out the door to their future retirement years. Somehow there have to be new ways of capturing that knowledge and changing perhaps the business model and design for a much younger work force that has a completely different view of how it wants to work and collaborate.
“The challenges that national security is faced with, and the constant innovation of the world and of our competitors—all of that I find incredibly frightening and incredibly exciting at the same time. It makes me very happy to be where I am in IBM where I think we are certainly a leader in innovation for the world.”