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Digital Transformation of Legacy Government IT Systems

Government use of business technology is primed for change. Next-generation IT solutions developed for the more progressive commercial markets are starting to contribute to the recovery of the public sector IT and professional services market, according to the latest worldwide market study by Technology Business Research (TBR).

After five years of consistently declining revenues in the sector, government services contractors realized aggregate weighted average growth of 3.9 percent in the first quarter of 2016 (1Q16) -- that's a 640 basis-point improvement over year-to-year.

While TBR attributes a return to growth in part to industry consolidation among a few vendors, average organic revenue declined 0.9 percent year-to-year among the 18 companies included in their research study.

Governement IT Market Development

"The public sector IT and professional services market recaptured growth during 1Q16, marking the turnaround of a long-pressured industry," said Sebastian Lagana, senior analyst at TBR. "While headwinds remain, disruptive technology adoption provides well-positioned vendors the opportunity to realize growth objectives during 2016."

Governments at all levels and across regions look for new solutions to improve constituent services and to lower their operating costs. Vendors that have invested heavily in capabilities to support digital transformation projects -- including analytics and Internet of Things (IoT) solutions, coupled with strong cyber security services to protect data from criminals, rogue states and insider threats.

Consulting and agile methodologies further enhance a vendor's competitive position by ensuring they can collaborate with clients on solutions development, and walk through the change management necessary to achieve the desired ROI in large-scale IT transformations.

Improvement is particularly notable in the U.S. federal market, where budget pressures have hindered the ability to spend beyond what is necessary to maintain legacy IT systems. Growth in the American federal market has outpaced overall public sector revenue growth, estimated at 4.3 percent year-to-year.

Government IT Market Outlook

The U.S. federal market outlook is bright, as the challenges associated with budget limitations give way to a more stable environment, and a growing recognition for the need to modernize the huge number of obsolete government IT systems that would clearly benefit from a concerted overhaul.

First-quarter results support a TBR assessment that the public sector services market has recovered somewhat. While the complete integration of acquisitions in legacy business will temper inorganic contributions barring additional M&A activity, TBR expects continued growth in the low single digits in 2Q16, with a return to organic growth possible by the end of 2016.

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