For her sake, it’s a good thing Health and Human Services Director Kathleen Sebelius isn’t working in the private sector.
If she did, the former Kansas governor would be out on the street right now. (By the time you read this, she might be.)
Actually, it’s worse than it sounds…
Sebelius and her tech team failed to live up to a series of bipartisan federal technology mandates stretching back more than 17 years.
Fact is, it was her responsibility to make sure the ObamaCare website HeathCare.gov was up and running smoothly at its launch on Oct. 1.
Instead, the crash-prone website is a major disaster that has the Obama administration on its heels. HealthCare.gov has become a political hot potato, with many Republicans in Congress calling for Sebelius’ firing.
Let me clear up one thing right now. My analysis of the situation at HHS is nonpartisan. And that’s the great thing about high tech: It’s politically neutral.
Web platforms don’t care about your political affiliation.
It’s not about politics, it’s about execution.
With tech, the question is simple: Does it work or not?
And for investors, our goal is to find high tech that makes us money. That’s why I want to tell you more about a small-cap expert that’s raking in the cash from government websites.
First, however, let’s put Sebelius and her tech team into some important historical context.
There Were Warnings
Her team operates under a 1996 federal law passed under a Democratic administration designed to prevent precisely this kind of mistake from happening in the first place.
So, my analysis of the website’s poor performance – and why Sebelius and her tech execs should be fired – is based on my 15 years of studying federal information technology and my understanding of the realities of high tech in the private sector.
That’s why I think it helps to take a look at how the late A.W. “Tom” Clausen handled a similar disaster at Bank of America back in the 1980s.
At the time, Clausen had recently left as head of the World Bank and returned to right the ship at troubled Bank of America. I know from personal experience the tough-minded, hard-charging executive would not accept this kind of failure on a major tech platform.
You see, in those days, I was the bureau chief of American Banker, a trade journal considered the Bible of the banking industry. I got wind of a major screw-up on Bank of America’s massive new computer system, designed to keep track of pension funds, 401(k) plans, and other employee benefits.
Bank of America spent $20 million designing and launching the MasterNet computer system. And, just like Healthcare.gov, the officials in charge of MasterNet put the system online despite signs of problems.
My exposés applied pressure to the bank to fix the problems and hold executives accountable. The bank eventually spent some $60 million to fix the problems.
And Clausen fired the two executive vice presidents in charge of MasterNet.
The example of how Clausen handled this situation speaks volumes about the differences between how failed leaders are treated in Washington these days and in the private sector.
Just last year, Apple Inc. (Nasdaq: AAPL) fired the head of the mapping program when the tech leader met with a barrage of criticism for the launch of its new maps application for the iPhone.
Only a few months ago, the board at mobile game maker Zynga Inc. (Nasdaq: ZNGA) booted the CEO who co-founded the company. Not only that, but his replacement has cleaned house, which included dismissing the company’s chief technology officer.
So, it’s a pretty safe bet that if a health insurer like Cigna Corp. (NYSE: CI) or Blue Cross Blue Shield messed up this badly, heads would roll.
For Sebelius and even for Obama himself, the problem actually runs much deeper than it appears.
E-Government Is Nothing New
The truth is, for at least the last 17 years, the U.S. government has been involved in a huge, sprawling effort to make federal information technology as good anything you’d find in the private sector.
Presidents Clinton and Bush were huge advocates of using technology to make the federal government more efficient, cost-effective, and citizen-centric.
Under Clinton’s leadership, Congress passed a federal IT law known as the Clinger-Cohen Act in 1996. Specifically, the act mandates that federal managers operate their IT systems as though they were efficient and profitably run private-sector businesses.
Three years later, at the end of Clinton’s tenure, a body known as the Chief Information Officers (CIO) Council – a Star Chamber of high-level tech experts from each federal agency – mandated that federal agencies help develop something known as an Enterprise Architecture. It was a complex undertaking, but it was basically a digital blueprint for making data flow seamlessly throughout the federal government.
Under Bush, Congress built on this effort with the E-Government Act of 2002. Among other things, the law mandated that the CIO Council meet regularly to keep the government computer networks running smoothly.
A year later, the Bush administration unveiled a program that became known as Firstgov.gov. The idea was to use IT systems to give citizens unprecedented access to federal services and information, and also to link to state, local, and even overseas government networks.
In short, Bush wanted citizens to find the information they needed in as little as three clicks on a federal website. Here is how the University of Albany’s tech center described the effort:
“Firstgov.gov offers a powerful search engine that searches every word of every U.S. government document in a quarter of a second or less.”
What a contrast between that bipartisan effort and the results today at Healthcare.gov. There, millions of citizens can’t even get log on to find the information they need. Instead of taking only a few seconds, using the deeply flawed portal often takes hours – if the site even works at all.
The administration says it’s working to correct the problem and that it will take at least a month to do.
Ironically, this embarrassment might have been avoided altogether had HHS used the services of a fast-moving, small-cap leader with deep expertise in this field.
The One Company That Could’ve Saved the Day
Its ticker symbol says it all: EGOV.
Indeed, NIC Inc. (Nasdaq: EGOV) is an expert at building government websites that operate flawlessly. It counts 3,500 government agencies as e-government clients.
In recent weeks, EGOV has made headlines because it:
• Helped the state of Hawaii’s Department of Health win its second national award for serving citizens through online services;
• Facilitated the redesign of a website for the state of Oregon’s medical board that includes a mobile offering;
• Provided the help needed for the state of Alabama’s website to run so well it won an international visual arts award among government websites; and
• Backed a tech system that lets teens in Wisconsin practice for their driver’s license exams with an app that works on tablet computers like the iPad.
To be fair, NIC does nearly all of its work for state and local agencies. However, it has racked up a great track record, both in terms of its technology and the stock’s performance.
Over the past year the stock is up 73%. But don’t worry: It still has plenty of room to run, if for no other reason than that the company has great financials.
With a market cap of $1.6 billion, the stock trades at just under $25 a share. The company has a 15% profit margin and a 39% return on equity. It grew its most recent quarterly earnings by 77% and reports third-quarter financials on Nov. 7.
Investors should pay attention to what happens with NIC for two reasons: E-government is a major tech trend – despite the debacle at HealthCare.gov – and this small-cap leader knows how to make piles of cash off this national tech effort.
See you next week…
[Editor’s Note: I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.]