By : Jim Pinto,
By : Jim Pinto,
Automation systems integrators serve big markets. But most of them are unable to "scale up" beyond about $5-10m in annual revenue because their markets are fragmented, have specialized requirements and are geographically spread out.
Automation.com, May 2004
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.
Product suppliers should not compete in systems integrationIn 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 channelsUnderstanding 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:AutomationTechies.com – Systems Integrators
Return to Index of all JimPinto Writings
Return to JimPinto.com HomePage
If you have ideas or suggestions to improve this site, contact: firstname.lastname@example.org