2018 State Government Industry Outlook

Three public sector trends shaping today’s state government.

Mark Price, Deloitte Consulting LLP principal and Public Sector National Industry leader sees three fundamental changes occurring in the market that state government leaders are going to need to respond to – political, technology, and innovation-driven change. Read further about his take on what’s to come in 2018.

We are about to see a wave of innovation in government -- not just automating processes but designing entirely new business models, new ways of doing the business of government, and perhaps closer collaboration with the private sector.

Digital government, analytics, behavioral economics, the maturity of internet of things (IoT) and sensor technology, and the maturity of cloud solutions are making entirely new things possible. Government leaders that can tap into this wave of innovation and apply it to the aging business models of government will likely jump far ahead of others.

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Political change

There has been so much focus on politics at the federal level, but state governments have also been facing major change. And there’s more to come. With 36 state gubernatorial elections coming up in 2018, we will likely see significant new policy initiatives leading up to mid-terms.

Some of the key areas that may impact states most are health reform, immigration reform (of particular interest to border states), tax reform, reform of business regulation, and significant infrastructure investment (that will flow down to cities and counties).

Not to mention, challenging budgets are often being crowded out by Medicaid and other health and human services (HHS) programs as the population ages. Infrastructure – roads, bridges, schools, prisons, water and sewage, and technology infrastructure – is aging. At the same time, states are competing to attract employers and jobs and may need to dramatically simplify and streamline licensing, certification, and registration to create a competitive climate for business.

Perhaps the biggest challenge state leaders will face is winning and maintaining the support of constituents. Confidence in government may be at an all-time low. Government leaders will need to engage directly with their constituents. States should simplify, streamline, standardize and automate processes for constituents and make government transparent and easier to navigate. Lastly, it is imperative that they demonstrate the value of government every day.

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Changes in technology

Federally mandated and federally funded HHS technology systems have generally been large complex, fixed price custom development projects. However, we are now seeing fundamentally new approaches like Agile, open source, cloud, software as a service (SaaS) solutions taking hold in the market.

In parallel with this shift in technology, we are also seeing a shift in procurement patterns. Agile, in particular, makes it possible for government agencies to implement smaller, phased procurements (for the right projects, that is). But it’s important to recognize that the new mind-set of procuring for Agile involves many major shifts in thinking.

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Discover how can government benefit from Agile software development in Deloitte Insights' Agile in Government.


Many states are already innovating in the way they run their business and partnering with the private sector to get things done.

The private sector itself is driving disruption through innovation that states are beginning to wrestle with, such as electric and autonomous vehicles as well as health technology and wearables. Autonomous vehicles provide a perfect example of large scale disruption coming much faster than anyone anticipated with profound impact for government: on transportation and infrastructure funding, gas tax revenues, the need for parking lots, the ability to use new road side real estate, what to do with drivers licenses, how to handle insurance, how to protect consumers through cyber and privacy rules, how to regulate without slowing down the commercial innovation.

States are beginning to explore cloud-based ERP opportunities and understand how it could help significantly reduce cost and increase efficiencies. Lastly, they are becoming more open to and aware of the potential benefits of smart cities, something that is now much more viable with the maturity of cloud based solutions and IoT sensor technology. As smart cities continue to grow, we can likely expect to see significant federal investment in infrastructure.

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Discover more about Smart Cities.

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Look again

In today’s rapidly evolving marketplace environment, key business issues are converging with impacts felt across multiple industry sectors. What are the key trends, challenges, and opportunities that may affect your business and influence your strategy? Look for more perspectives and insights from some of Deloitte’s forward thinkers.

Discover more Industry Outlooks.

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