U.S. Public Sector Grows Up Fast With Cloud Transformation

Most state and local governments in the U.S. are shifting critical software to the cloud and outsourcing IT operations, a major shift in strategy caused by pandemic-related disruptions and other recent changes to the public sector, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The 2022 ISG Provider Lens Public Cloud — Solutions and Services report for the U.S. public sector notes that state, local and educational organizations are finding they must serve constituents better at less cost or resort to delivering lower levels and fewer types of services. Legacy IT systems are nearing the end of life, IT staffing challenges are growing and organizations face shrinking budgets. As a result, most state governments, many schools and several major cities are moving from early cloud environments to cloud-first strategies, ISG says.

“The public sector in the U.S. can no longer ignore the cloud, because they are under so much pressure to do more with less staff and funding,” said Nathan Frey, partner, ISG Public Sector. “ISG expects a wave of cloud adoption that will continue through 2025.”

The COVID-19 pandemic was the trigger for much of this change, the report says. The shift to working from home and the wave of resignations that came with the disruption of work affected the public sector more than most. Falling tax and licensing revenue during the pandemic made the situation worse. Then, in late 2021, special funding from the federal government made rapid digital transformation a mandate at organizations that had not modernized IT in decades.

Because they are far behind most private enterprises in using the cloud, U.S. public sector institutions are often uneasy about cloud transformation, ISG says. Many lack expertise in budgeting and procurement for cloud services or perceive the cloud as not secure enough for their needs. A small number of service providers have the experience and knowledge of the public sector to offer consulting services that help these clients plan and carry out cloud projects.

Hyperscale cloud operators, along with their service provider partners, are developing offerings tuned specifically for the public sector, the report says. Agencies adopting cloud services typically engage with more than one platform, which can make cloud operations even more complex. These organizations commonly engage with managed public cloud providers to make their cloud environments function reliably and efficiently. ISG expects demand for managed public cloud services to keep accelerating as public sector cloud environments mature.