SOURCE: IBM

May 11, 2006 10:06 ET

IBM Viewpoint: Government in an Era of Transformational Opportunity

ARMONK, NY -- (MARKET WIRE) -- May 11, 2006 --Surprisingly, one of the world's top three industry buyers of information technology is not an "industry" at all. It is government. Not only is worldwide government IT spending large and growing. It is also heavily skewed toward services and infrastructure solutions rather than IT point products. This aligns strongly with IBM's strategic focus.

Leading IT analyst firm IDC reports that worldwide government IT spending will exceed $138 billion in 2006, representing 12.2 percent of overall IT spending. IDC states that, "government buyers will demand total business solutions," and that, "hardware and software selection, purchase, and integration is being identified and procured within an overall services or transformational program."(1)

Governments of all sizes on every continent face a consistent set of transformational challenges. These include:

--  Budget constraints:  Governments face the need to become more
    efficient, or to raise taxes.
--  Rising social commitment costs:  Changing demographics are placing
    unprecedented demands on social programs, from health care to old age
    pensions.
--  Demand for new expenditures:  Emerging needs in areas such as defense
    modernization, domestic security, environmental stewardship and
    infrastructure are competing with established funding priorities.
--  Investments in economic competitiveness:  As globalization makes it
    possible to source skills and facilities anywhere, governments need to
    establish the requisite skills, infrastructure and policies to attract and
    retain business.
    
Delivering More with Less:

Underscoring these challenges, government IT organizations report their top business priority for 2006 is to "improve the efficiency of IT by delivering more with less" according to Forrester Research (see chart).(2)

To address these challenges, IBM is helping governments integrate and innovate their business processes, change their organizational models and culture, and modernize their IT infrastructure. This calls for the fusion of industry-specific services, infrastructure solutions and research capabilities that can be brought to bear for governments worldwide.

Targeting Growth:

IBM's portfolio of government services and infrastructure solutions targets the fastest growing segments of IT opportunity.

--  For defense, IBM solutions are enabling clients to implement Network-
    Centric Operations to strengthen their defense through better decision
    making and enhanced defense operations.  IBM is providing the
    infrastructure, services and networking capabilities that integrate defense
    organizations internally as well as with coalition partners.
--  For social services, IBM is helping clients improve the results and
    reduce the costs of today's programs.  This includes implementing
    integrated case management, benefits processing and client support systems
    that allow social services agencies to take a holistic view of each client.
    IBM has also developed a fraud and abuse detection solution that can help
    save governments billions of dollars annually.
--  For customs, ports and border management, IBM is providing solutions
    that consolidate border protection functions and enable communication and
    collaboration on traveler clearance.  In the area of cargo security and
    management, IBM is building a global supply chain management solution
    called Intelligent Trade Lane that provides real-time data about the
    contents and movement of shipping containers on vessels around the world.
--  For economic competitiveness, IBM is working with local, state and
    central governments to help them assess their competitiveness on a wide
    range of issues designed to attract and retain business -- from skills
    training, to transportation and infrastructure capabilities, to tax and
    business incentive policies.
    
Recent Client Results:

Reducing traffic congestion and improving environmental quality for Stockholm, Sweden IBM has launched the Stockholm Congestion Charging Scheme, which has reduced traffic by 25 percent, increased public transport usage by 40,000 users per day and dramatically cut peak-time road congestion. As the prime contractor responsible for solution design, development and operation, IBM has worked closely with the Swedish Road Administration and the city of Stockholm to launch a trial congestion charging system covering a 24 square km area of the inner city. As worldwide interest in the economic and environmental challenges of traffic management continues to grow, the Stockholm trial represents a new benchmark in scale, scope and sophistication.

Enhancing economic competitiveness for the Commonwealth of Pennsylvania IBM consultants have worked with the Department of Economic and Community Development with funding provided by the Team Pennsylvania Foundation to create a first-of-its-kind economic development plan based on point-by-point, industry-by-industry comparison of Pennsylvania with other regions around the world. As part of this effort, the IBM team developed a data-driven tool that can be used by Commonwealth officials to market the state's capabilities and target business development opportunities within competitive clusters and regions of the state. This unique tool has become an integral component of Governor Rendell's economic strategies that have helped the state climb from 41st to 15th in economic growth since 2002.

Reducing Medicaid Fraud for Erie County, New York IBM designed VERIFY NY, a county-specific data-mining computer system that flags irregular billing practices and procedures that may cost taxpayers across the state billions of dollars in fraud and abuse. VERIFY NY will help Erie County look at the types and numbers of procedures provided to recipients, and the dollar amounts that its health care providers are billing Medicaid for those procedures. IBM's VERIFY NY is the most advanced Medicaid claims management program available today. Erie County is one of 11 counties in New York State using this system.

Establishing information sharing and collaboration for Finland's Defence Forces IBM was chosen by Finland's Defence Forces (FDF) to be the integrator for a new operations system (iC4I -- command, control, communications, computing, intelligence). FDF is taking a leadership position in network-enabled defense, which allows more efficient use of existing operational resources based on real-time information. Sharing information across organisations ensures flexible and interoperable, effect-based operations. The COTS-based (Common-off-the-Shelve) IBM solution is expected to bring significant savings as well as enhanced capability for the FDF. The project is expected to be completed by 2010.

Through these and hundreds of other engagements, IBM is providing governments around the world with the most innovative IT solutions to meet the challenges of today and tomorrow.

This and other IBM Investor Relations Viewpoint features are available on IBM's investor Web site at: http://www.ibm.com/investor/viewpoint/features/2006/09-05-06-1.phtml

(1) IDC, "Customer Needs and Strategies: Top 10 Predictions for the Government Industry in 2006," IDC #34725, Volume 1, January 2006.

(2) Forrester Research, Inc., "Teleconference: 2006 Government IT Spending Trends," February 28, 2006.

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