COVID-19 will accelerate a range of secular trends in federal IT

Despite the inevitable short-term impact of COVID-19 on federal technology outlays, IT infrastructure modernization will eventually return to the top of the list of federal IT spending priorities, as will investments in cybersecurity, analytics, AI, big data, cloud and machine learning. The epidemic will disrupt contract delivery, create resource deployment challenges at federal IT vendors and their agency clients, and may cause nonhealth-related discretionary spending to be redirected to healthcare areas, benefiting vendors such as Leidos, Accenture Federal Services, Maximus and ManTech (Nasdaq: MANT).

As federal agencies transition large portions of their workforces to remote environments IT infrastructure improvements and migrations to cloud and everything “as a Service” will follow, along with projects to improve private networks and broadband connections and engagements to enhance security requirements as the “threat surface” exposed to new security breaches expands. Federal IT decision makers are increasingly seeking methods of combating COVID-19 that have been proved in the commercial sector.

Federal spending levels are expected to increase on preparedness and response activities and other disaster recovery or mitigation work in the fiscal 2021 budget, with a growing volume of IT modernization opportunities around disease surveillance improvement, including the implementation of new IT systems and advanced analytics. Still, the overall landscape for products and services to counter biothreats remains unclear and federal IT vendors will be tapped to provide the vision and road map for the adoption of biothreat surveillance solutions. Spending on electronic warfare, countering drones and unmanned systems and other areas of the National Defense Strategy will remain strong for the next two years and in fact may expand to include bio-monitoring and bio-surveillance technologies.

Most of the results from the 1Q20 earnings season are in, and federal technology contractors have provided initial reactions to the impact of the coronavirus pandemic on their fiscal performance and their outlook for federal fiscal 2020 and beyond. By and large, the fiscal effects of COVID-19 were limited to the final few weeks of the quarter, according to a plurality of federal IT vendors, minimizing the top- and bottom-line impacts for most federal technology contractors. Negative impacts were most concentrated in the global aerospace sector, and as such, companies with a footprint in commercial or government aeronautics encountered severe growth and margin headwinds. However, all federal contractors had to scramble to acclimate resource management, operations, service delivery, business development and supply chain management strategies to the new COVID-19 environment.

Near-term market implications: What is next, rather than beyond

TBR believes the intersection of public policy and commerce is the next area where technologists will apply their energies within the blockchain realm. The core platform elements are in place with clearly articulated road maps for ongoing development work. At issue will be the policy regulations and compliance methods needed to ensure blockchain-enabled business activity can be seamlessly imported into legacy systems of record for financial reporting purposes.

Similarly, nation states and native-cloud platforms such as Facebook will vie to become the de facto economic exchange mechanism for blockchain transactions. Notably, Libra Association, the Facebook-created digital currency, recently named former U.S. Department of the Treasury Under Secretary Stuart Levey as its first CEO, indicating Facebook’s strategy for bridging the nation state-commercial entity divide. Taking a conservative posture to minimize security threat vectors to protect the value of the currency in question appears, on its face, to be the most prudent course of action. On the other hand, taking a more aggressive position that allows for deeper embedding into commerce chains and exposes the currency to more programmability — and consequently creates a greater surface area for malicious attacks — is a risk nation states and businesses will undertake to gain greater participation in the digital economy.

In the short term, then, the conservative posture is prudent. In the long term, however, such conservative viewpoints could result in shifting geopolitical power. The U.S. dollar, for example, has been the de facto foreign exchange clearing mechanism for decades. A conservative posture on the part of the U.S. Federal Reserve on digital currency opens the door for other entrants to displace the U.S. dollar as the international clearing mechanism and, in so doing, removes a valuable foreign policy tool from the U.S. diplomatic toolbox at a time when U.S. diplomacy is already severely challenged.

The fourth annual EY Global Blockchain Summit had a vastly different look and feel as the COVID-19 pandemic shifted the engagement to a virtual forum and turned the spotlight on the rapidly coalescing use cases that blockchain technology underpins. The core coterie of blockchain builders does not have to prove technical value through “use case show and tell” of how the technology works, but rather needs to discuss what the technology delivers in terms of business process improvement. However, technology companies do need to outline product road maps to ameliorate persistent concerns. More important, though, is the need for automated interaction, adjustment and compliance with business rules and the ever-evolving public policies designed to mitigate risk. It appears clear that as revolutionary as blockchain can be to business commerce by shifting the tracking of such activity from general ledgers to distributed ledgers, it can be equally transformative to nation states, depending on what form of currency exchange settles out as the de facto clearing mechanism for multi-enterprise blockchain business networks.

With a foundation in open source, Red Hat is poised to deliver to the hybrid-ready enterprise

The open source proposition has been embedded in Red Hat’s roots since the company’s founding in 1993 and has since remained at the core of its guiding principles, with Linux operating system (OS) at the heart of all its innovations. Vendor loyalty and clearly charted paths were the mantras many companies operated on for years, while “digital transformation” was barely on an enterprise’s short-term road map. Then a decade ago, cloud adoption surged, creating the impetus to embrace more agile and flexible development models, and open source technologies emerged. While business models centered on open source software have proved challenging for many, Red Hat’s pre-established culture and leadership around open source communities solidifies the Red Hat brand, paving the way for rapid scale, as the company has captured over 90% of the Fortune 500 as clients and in 2019 became the first open source-defined company to reach $3 billion in annual revenue.

During opening keynotes, Products and Technologies EVP Matt Hicks discussed how Red Hat is leveraging its foundational strengths in an open hybrid cloud approach, which, by virtue of being open, goes beyond technology and extends to processes, cultures and transformation, to further differentiate. Red Hat is releasing new offerings to capture opportunities around hybrid infrastructures, application development and management while rapidly scaling up the integration of technologies such as AI and edge, bolstered by collaborative engines like its Innovation Labs.

Originally scheduled to be hosted in San Francisco, Red Hat Summit 2020 offered participants numerous opportunities to virtually engage in hands-on labs, converse with industry leads and hear from Red Hat customers, and it did so while maintaining the spirit of openness and collaboration for which Red Hat is known. While the topic of COVID-19 did not overtly dominate the discussions or significantly color the overarching Red Hat messaging, it became clear that the ability to pivot rapidly, embrace change and remain flexible will underscore Red Hat’s efforts to successfully promote transformation amid the pandemic. Red Hat’s reputation has historically been predicated on its open and agile approach to development and deployment, long before such attributes were considered valuable, let alone essential.

In the early days of the nationwide shutdowns, members of the Accenture Chief Human Resource Officers (CHRO) Forum saw the storm brewing, compelling them to think creatively. With swift action and support from CEOs, HR leaders from Accenture, Lincoln Financial Group, ServiceNow and Verizon mobilized their efforts and capabilities and developed a solution that facilitates continued employment. Accenture stood up People + Work Connect, an analytics-enabled platform, with the goal of helping enterprises sustain business continuity by allowing human resources to move to meet demand.

What it is and what it is not

TBR had a chance to discuss the nuances of the People + Work Connect platform with two of the architects behind it, Accenture Talent & Organization/Human Potential Lead Eva Sage-Gavin and Work & Workforce Lead Nicholas Whittall, to understand their motivations for and expectations of the platform.

With Accenture acting as the technology provider, rather than the mediator between organizations’ supply and demand workforce needs, the company’s role is largely centered on assembling and managing the collation and design, and building and running the platform. A team from Accenture Liquid Studio built a business-to-business, fit-for-purpose platform to help companies match available workers to open jobs based on select criteria including location, experience and number of openings. The platform is currently available for free, and Accenture leaders have said the company “won’t ever charge.”

While TBR recognizes the noble approach Accenture and its partners have taken to develop, manage and offer the platform free of charge, in the long run we believe the company is gaining value from the effort (discussed below). With design principles including “progress over perfection,” Accenture developed the platform in 14 days from pilot to launch, reaching its goal of a “Minimally Loveable Product,” rather than an all-encompassing solution. TBR sees Accenture’s approach here as another example of COVID-19 accelerating change across IT environments and, more broadly, business policies and practices.

At the same time, both Sage-Gavin and Whittall reinforced that the platform’s simplicity and scale appealed to businesses looking for immediate solutions to massive problems. We see the simplicity of the data request — Accenture stayed away from using personally identifiable information when developing the platform — as critical to the platform’s uptake and success, such as when two call center companies — one laying off workers and one looking for experienced call center staff — can use the platform to ensure a minimal number of jobs are lost in particular locations. Additionally, features such as a depository for ideas, questions and advice, called a “Knowledge Exchange” on the platform, can provide insights into best practices on benefits and evolving HR practices.

We see such insights impacting not only the HR role but also the broader organization. As COVID-19 abates, revised HR policies and the lessons learned through using the platform to address challenges during the pandemic will likely influence future staffing and IT needs, thus affecting organizations’ planning and financial cycles. As Accenture maintains an arm’s length distance from how companies handle the recruiting and onboarding processes once the match is made, the company is able to provide data concierge services, identifying which data is most important to future refinements of existing ERP systems and HR platforms.