Mark McDonald

Over the summer McKinsey published their top 10 trends for the next year or so in Harvard Business Review in July 2009 http://tinyurl.com/l2ooj3.  This post discusses the trend related to government’s role in the economy.

A bigger role for government – an accelerating trend

It is natural to see the global financial and then economic crisis as a failure of regulation and public policy.  Compounded with unprecedented government intervention in the economy from stimulus packages to direct government takeovers and this trend becomes obvious.

McKinsey’s recommendation is for executives to help shape and prepare your strategies to compete in an environment of new regulatory regimes.  Their second recommendation is to consider the that the public sector will grow in importance and a major customer led in part by increase in stimulus spending as well as their growth relative to customers still mired in the recession.

The wisdom of this trend is clear.  When you consider that by 2010, US government spending is expected to be 41.3% of US GDP you see that the public sector appears to be the largest single market in the U.S.

IT demand will be at the forefront of expanded public sector demand

A larger role for government influences IT at several levels.  First new regulations and policies drive new projects within government agencies.  And there will be much regulation on the horizon as Barney Frank a U.S. Congressman and the Chair of the House Banking Committee commented that, “2009 will be the best year for public policy since the Great Depression.”

Regulation requires information to formulate policies, information to report on policy progress, and new IT systems to administer new policy regimes and responsibilities.  At the same time, many governmental IT systems are at the end of their useful lives setting a stage for major IT refreshes as part of policy reform and implementation.  The combination of new policies and old information systems will increase public sector demand for systems and services.

If new regulation influences the regulators, it has an impact on the regulated as well.

Unfortunately, regulatory compliance is often an ‘unfunded mandate’ in the IT budget.  Few CIOs reported getting major budget increases for SOX compliance.

If future regulation follows recent policy regimes then they will concentrate on assigning legal responsibility and requiring advanced reporting.  CIOs should take a fresh look at information and reporting capabilities.  Many will benefit from leveraging prior SOX implementations, but continued investment, process control and streamlining will be in line.

Finally, this trend points to government as a significant part of national GDP and an area of growth.  In every recession IT solutions, service and other providers suddenly discover the public sector.  However, the government is far from a single addressable market.  Working in the public sector involves addressing multiple procurement policies, different needs and priorities that make the notion of a single Public Sector Market more of a wish than reality.

The future of government involvement in business is a matter for the public and policy makers.  However, this trend will influence IT demand in both the public and private sector.

The big issue facing IT professionals is not the coming wave of regulation but how that regulation is handled.  Will regulation further demonstrate an IT model that is reactive and expensive, or one that is able to meet regulatory demands for information with a combination of business acumen and intelligence?

What do you see coming on the horizon?

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Category: 2010 Strategy     Tags: 2010 planning, IT and Business, IT strategy, Strategy and Planning

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