Automation systems integrators serve big markets – but few of
them to seem to grow beyond about $10 million in annual sales. This is because
of their inability to "scale up" in markets that are fragmented, have
specialized requirements and are geographically spread out.
It
takes good systems talent to design and install a system, to develop the right
cost tracking and controls, to expand beyond a home territory without running
out of talent or money. Go to the Control System Integrators Association
website, and find out how many systems integrators there are beyond $10m. Not
too many.
If
you review a list of Systems Integrators, it shows several companies in the $100
million annual revenue range. But these are primarily the automation majors who
provide integration services for their own products – so they don’t really count
as “independent”. When the search is narrowed to integrators who describe
themselves as strictly independent, the distribution was further skewed to the
lower revenue ranges.
Summary analysis:
-
1,000 companies in the US & Canada
-
80% major suppliers’ SI services
-
20% “independent”
-
50% $ 1-5 million annual revenue
-
Only 15 “independents” $10-25 million
-
Only 7 over $25 million
Interesting point: Only 3 of the 7 integrators with sales of more than >$25
million are located in the US, which pretty much proves my point about the
growth ceiling.
Product suppliers should not compete in systems integration
In their search for growth, many major automation suppliers have
expanded in to systems integration – to become "total solution providers". The
total solution includes sales, distribution, engineering, systems integration,
service. In my opinion, while this strategy may generate additional short-term
revenue, in the long haul it is a business mistake.
“Services” are knowledge intensive (people and labor) and
typically local (on-site systems design, integration and startup). Around the
world, this type of business is usually subject to intense local competition and
cannot easily be scaled up for consistent revenue growth and profit margins.
Automation product manufacturers attempting growth through
systems integration and services must recognize that their “solutions &
services” offerings put them into direct competition with some of their best
customers – the local systems integrators. It is true that the manufacturer has
the advantage of additional margins and proprietary product applications
knowledge – but the integrator has the advantage of being local and can often
defect to competitors’ products.
Systems Integration – growth channels
Understanding that they are market specialists with territorial
bias, independent Systems Integrators can grow only through partnering with
similar companies. The key is to find other companies that have matching
expertise (non-competitive vertical market specialization) and geographical
coverage. When any particular end-user requires integration services, the
company that is most conveniently located to the end user can take the lead,
utilizing knowledge, expertise and services from any of the allies.
In today’s global market, where projects may be designed in one
part of the world and installed in another, this type of alliance is perhaps the
only route to profitable growth for independent systems integrators.
Related Links:
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Jim Pinto is an industry analyst and commentator,
writer, technology entrepreneur, investor and futurist. You can email him at:
jim@jimpinto.com. Or look at his poems, prognostications and
predictions on his website:
www.JimPinto.com.
Read his latest book: Automation unplugged:
http://www.Automation.com/content/automation-unplugged-pintos-perspectives-prognostications-predictions-poetry
