IBM Makes Aggressive Play for Public Sector

There’s no doubt that IT/IS spending has taken a hit in the long drought since the bottom fell out of the technology space, and
while research indicates spending in the sector may
be on the rise in the second half of 2002, the smart money suggests that public sector spending is likely to be one of the driving
factors behind that growth.

Taking that to heart, IBM Corp. has begun aggressively ramping up its efforts in the federal services market, as
evidenced by the company’s May 3rd announcement that it has put together an “all-star” team dubbed Delta Blue to bid for the
Department of Defense’s human resources project, the Defense Integrated Military Human Resources System (DIMHRS).

“We’re in a very aggressive growth pattern,” said Tom Burlin, vice president of IBM Global Services Public Sector, Federal
Government Operations. “We’re targeting to grow very aggressively in a market that is against the normal economics of today.
Government and defense and intelligence and security are growing as a result of some of the events in the recent past. We expect to
grow at two times the rate that the industry is growing.”

DIMHRS, contracted by the Space and Naval Warfare Systems Command (SPAWAR), is the largest integrated pay/personnel system in U.S.
government history, and will support about 3.1 million service personnel. Analysts have estimated DIMHRS to be worth between $500
million and $1.5 billion. In March, SPAWAR selected PeopleSoft human resource management software Version 8 to provide the backbone
of the system in a contract worth about $6.5 million. IBM is bidding to be the integrator that will put the various modules —
including HR, Payroll, Time and Labor, Benefits Administration, Pension, eRecruit, eRecruit Manager Desktop, eCompensation,
eCompensation Manager Desktop, eProfile, eProfile Manager Desktop, eBenefits, eDevelopment, ePay, Workforce Insight, Workforce
Rewards, Workforce Scorecard and Employee/Enterprise Portal — together.

IBM sold its federal systems business years ago, but Burlin said Big Blue started rebuilding a public sector business about two
years ago as a result of the government’s increasing recognition that commercial-off-the-shelf software provides a number of
benefits over the custom-built solutions it has turned to in the past.

“About two years ago, we seriously re-entered the federal services market,” Burlin said. “We realigned our business along the
government’s agency align.”

By utilizing off-the-shelf solutions, the government can reduce the costs associated with buying software, as well as support and
maintenance. It also allows the government to tap into the commercial upgrade cycle, enabling its solutions to stay current with
emerging technology.

That’s where IBM thinks it has an advantage over more “traditional” defense integrators like Lockheed Martin, Northrop Grumman,
Raytheon and Computer Sciences Corp. (CSC), which are likely to be among IBM’s competitors for the contract.

“What we’re bringing to the market is the commercial systems integration skills,” Burlin said. “That’s where the government wants to
go. They’re moving toward commercial best practices. That’s an extremely strong selling point of the IBM team.”

He added, “We know what kind of business process and cultural changes need to go with the technology.”

IBM is intimately familiar with PeopleSoft software, and it is the product of choice for its Asia Pacific enterprise.

Of course, many of IBM’s likely competitors for the contract are no strangers to PeopleSoft themselves. Lockheed Martin is the prime
contractor for the Navy Standard Integrated Personnel System, a $225 million PeopleSoft-based implementation scheduled to go
operational in 2004. Lockheed Martin is even helping the Navy prepare its records for DIMHRS.

And CSC is modernizing the Internal Revenue Service with PeopleSoft. It is also modernizing the Coast Guard’s military pay and
personnel system with PeopleSoft in a $6.9 million project.

Delta Blue
But IBM is not going it alone. The Delta Blue team it announced on May 3rd includes Cap Gemini Ernst & Young, Ciber, TRW, CACI
Dynamic Systems (which at one time was considered a potential bidder for the contract itself), American Management Systems (AMS) and

“We’ll lead the program from a program management standpoint and lead the transformation aspects of this, both cultural and
technical,” Burlin said. “Cap Gemini brings a lot of business process engineering skills and change management to the table. TRW,
today, has deep knowledge about the applications and the management of the applications in this space in particular.”

He added that CACI offers legacy systems integration expertise and deep domain knowledge. MPRI, staffed primarily by ex-military
personnel, has extensive knowledge of human resources as it relates to the armed forces. And AMS is currently a DoD management pay

“The team of integrators we’ve assembled are world class companies with extensive experience implementing large-scale solutions
across multiple and disparate systems,” Burlin said. “IBM’s own expertise in implementing PeopleSoft applications is similarly
extensive. By pulling together a team with such a broad array of experience and expertise, we are sending the Defense Department a
clear message about our ability to deliver for them on this ambitious and significant project.”

The DIMHRS project
And there’s no question the project is both ambitious and significant. DIMHRS aims to replace 88 legacy personnel and pay systems —
written in the 1970s and 1980s — across the armed services with a single system and database. The system will be the fulfillment of
a congressional mandate to bring all four services under a common personnel and pay system.

The mandate was the result of Desert Shield/Desert Storm, where the Joint Commanders had difficulty in tracking personnel from all
services into and out of the theater of war. Also, DoD said the increasing number of U.S. service personnel in humanitarian and
peacekeeping missions has highlighted the need for improved personnel tracking, customer service and streamlined mobilization

In particular, DIMHRS is intended to help the services overcome a number of disadvantages to the current systems, including:

  • Commander-in-Chiefs don’t have access to accurate or timely data on personnel needed to assess operational capabilities
  • The Office of the Secretary of Defense, joint managers and other data users are hindered by the lack of standard data
    definitions that prevent comparisons across services

  • Reservists who are called up are sometimes “lost” in the system, affecting their pay, their credit for service and their

  • Active duty personnel (and reservists) are not tracked into and within the theater
  • Linkages between the personnel and pay functions differ among the services, forcing multiple data entry, complex system
    maintenance, reconciliation workload, and pay discrepancies.

DIMHRS would also allow members of the services to access personal information and address administrative matters and pay issues
from the Internet at any time and from anywhere.

SPAWAR is expected to award the contract in third quarter 2002, possibly in June or July. The Army has volunteered to be the first
branch of the services to go live with the system. It will begin testing the system in 2003, and will go live in 2004. According to
the tentative DIMHRS top-level schedule, the Navy is expected to follow the Army in 2004, with the Marine Corps coming online in
2005. The Air Force will be last. The system is expected to be fully deployed by the end of fiscal 2006.

While it likely faces stiff competition for the contract, Burlin was confident that the Delta Blue team can win the bidding.

“We’re partnered, we’re sharing risk and we’re going to share success together,” he said. “When it’s in the space of commercial
systems integration and bringing technology to bear to address business process and business management, we think we have a very
strong hand.”

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