Systems Integration is a tough a business. No one is denying that. While we all may have an instinctual sense that “there’s got to be a better way”, it’s tough to know where to start. Downward pricing pressure is rampant, and Total Cost to Serve continues to it’s ascent. But it’s not all doom and gloom around here. The good news is that we need not look far for inspiration. The IT industry faced strikingly similar circumstances in recent history. And I’ve worked closely with enough “IT guys” to know that they’re doing just fine. So what can we learn? Let’s take a look…
1) Hardware margin is dead
The IT industry had its heyday in a time when networking hardware was highly specialized and quite expensive (sort of like $25,000 Plasma Televisions, remember those?). It was only a matter of time before standardization and enhanced efficiency in production drove those costs way down. In fact, current trends are pushing more and more data “to the cloud”, reducing, or even eliminating all together, the need for local hardware in many cases.
In a similar vein, most Integration companies matured in a an era rife with product margin. A wide variety of factors have all conspired to drive prices down nearly across the board. Sure, there are still some vestiges of profit remaining in certain categories. But in large part a business model that depends too heavily on hardware margin is hardly a business plan at all. Most of you are probably already resigned to it, but the sooner we openly embrace that fact, the sooner we can find ways to make money in spite of it. So keep reading…
2) Design and Engineer OR Install and Service?
Ira Friedman, the author and founder of Bay Audio, once wrote an interesting, and somewhat controversial piece titled “Will You Design or Build?”. While reasonable people could disagree over the scope and scale of his predictions, the theory certainly warrants consideration. While he doesn’t draw direct comparisons to the IT world in his article, he speaks of the “strategic arc of most mature service industries”. His argument being that as any skilled trade matures a division of labor develops, separating those who design and engineer systems (the consultants) from those who install and service them. The large number of highly paid IT consultants out there seems to indicate that they have bridged this gap successfully. Don’t believe me? Ask the IT guy on your next project to terminate an RJ45 end. My point here is that many of us are simply being asked to do too much. Like those in the IT industry, it’s time we decide what to specialize in. So, like Mr. Friedman, I ask “will you design or build?”
3) The use of PSA software
Ask the vast majority of successful IT professionals what software products they use to streamline their business, and most will answer first with some version of a PSA software. It stands for Professional Services Automation software and it has been widely adopted in the world of IT to help automate tasks such as project management, resource management, CRM, and job costing (just to name a few). Discussing specific solutions is outside the scope of this article, but a quick Google search for “PSA Software” will give you more options than you could ever hope to try. For a variety of reasons, our industry as a whole has not widely adopted the practice of using PSA software. However, that appears to be changing, albeit slowly. I say the sooner the better.
4) Remote Monitoring
Surely you’ve heard the latest buzzwords in the industry, the “connected home is coming!”. News flash, the connected home is already here. Nearly every electronic device that our clients interact with is already network enabled. In theory this fact provides systems integrators with the ability to proactively monitor and manage all of these devices remotely, a practice the IT world has down to a science. Although there are a number of vendor-specific solutions out there, what our industry really needs is an overarching product capable of proactively monitoring devices from multiple manufacturers. The software company ihiji comes to mind. I recently wrote about them, and this topic, in more detail. If you’re interested, check out the article here. I think we’ll see more solutions for this problem come “online” (pardon the pun), the only question is when?
5) Implementing SLA’s
Not long ago the IT world went through the same transition we’re going through right now. Profit on hardware shrank drastically, while the complexity and the total cost to service that hardware continued to climb. As a result, the IT industry has widely adopted the practice of implementing SLA’s (service level agreements) to not only lock in recurring revenue for their service, but just as importantly, to manage client expectations about the delivery of that service. In our industry these arrangements are typically called Service Contracts, a name so full of negative connotations that I think it should be thrown out with bath water immediately. As a whole, our industry has thus far struggled with implementing such agreements. With that said, it is certainly a trending topic at the moment and I’m curious to see what the next couple of years bring.
So there you have it, five lessons we should all take from the IT industry. Let us know what you think in the comments section below!