With AI and Automation on the Rise, It's Time To Reinvent the SI
Times are a-changin' and in order to be successful tomorrow, systems integrators will need to adapt their businesses to the needs of the digital-transformation era.
- By Per Werngren
- November 08, 2017
I've always struggled with the term "systems integrator" because to me it felt both limiting and fluffy.
According to Gartner Inc., a systems integrator (SI) is "an enterprise that specializes in implementing, planning, coordinating, scheduling, testing, improving and sometimes maintaining a computing operation. SIs try to bring order to disparate suppliers." That description is probably very accurate, but for me it signals a business that's a little bit stuck in the past.
Fast-forwarding to this side of the millennium, there are a number of highly successful SIs that are selling professional services in various ways. Most of them bill by the hour and often they work in projects with variable or fixed prices. Traditionally, SI profits are about 10 percent, so watching your cost base and making sure you bill every single hour has been a recipe for success. With such a small net margin you need to grow so that you get scale. We've already seen, and will surely continue to see, increased consolidation.
But times are a-changin' and in order to be successful tomorrow, SIs will need to adapt their businesses to the needs of the digital-transformation era. As more tasks become either automated or simply redundant due to the massive innovation in software, customers will need fewer people taking care of their IT -- and that will hurt SIs.
While most SIs have a few rock stars, many of the people are performing relatively simple tasks and these employees will be needed in lesser numbers tomorrow. Call centers will face a revolution with chatbots driven by artificial intelligence. Managing servers and PCs will be done through automation. OSes are becoming less important. Integration between applications and databases will be done through out-of-the-box functionality. Networks will be handled without the need of traditional plumbing.
Don't get me wrong -- this won't happen from one day to the next, but the shift started awhile ago, and change is rapidly accelerating. It's easy to ignore changes when you're doing OK, but if you wait until your business is hurting, it's far more difficult to adjust.
SIs need to bet less on people doing mundane tasks and instead think about how they can really differentiate themselves. One way is to bet on one or a few verticals. But the business models also need to change so that a large portion of the revenue is driven through innovative managed services built with the intellectual property developed by the SI. The keys are to differentiate from SI competitors and innovate to give SI customers predictable costs and outcomes. Great managed services will give SIs a very decent margin and will also drive the valuation of the SI business.
And as SIs focus their business, they should be open to building partnerships with others that have skillsets and solutions that complement their offerings. Specialized companies working together is the new black. Having a large number of people on the SI payroll doing mundane tasks is not the recipe for success. It's more a sign that the SI hasn't modernized its business.
There will be a new and sunny tomorrow for SIs that embrace change. They need to make sure they're a part of it.
More Columns by Per Werngren:
Per Werngren has held many roles at the worldwide level of the International Association of Microsoft Channel Partners (IAMCP), including chairman and president.