System integrators who were capable of meeting every requirement in this field were running to the help of IT departments which were dealing with piles and piles of projects. However, due to the abrupt transformations in the IT market, the concept of system integrators is about to be getting outdated. What kind of challenges are awaiting the system integration companies in such an environment? What path should these companies follow in order to reinvent themselves as value-added new-generation IT service companies?
In today’s ever-evolving world, the role and significance of IT is growing fast as a result of digital transformation and shifting business models. Companies are struggling with external factors such as speeding up the product development processes to stand out from the crowd and meeting new requirements due to changing customer expectations. There are also internal challenges that need to be taken into account such as adapting to the agile business models as well as cultural transformation and resource optimization that these business models require.
Business IT managers must constantly juggle competing priorities as they work to ensure the continued viability of critical systems while also reducing costs, boosting productivity, and keeping up with the demands of digital transformation and shifting business models. There is a variety of initiatives and priorities, each of which is progressing at its own pace, with the rapid innovation and day-to-day operation and maintenance of systems. The response to all of this is sometimes hampered because many IT businesses lack the necessary resources, skills, and agility. Therefore, system integrators come into the picture.
SYSTEM INTEGRATORS WHO ARE JACK OF ALL TRADES ARE DISAPPEARING
There is no longer any need for a one-stop shop when it comes to systems integration or information technology. The variety of services that the system integrators have been trying to offer has increased exponentially due to the advancements in technology. It is extremely challenging to be able to recruit a workforce that can offer the variety and quality needed for these services and at the same time remain competitive against highly specialized niche players in the market.
Many IT departments regard the bi-modal approach as the best option for pursuing new prospects and innovations without compromising on current operations. However, even an IT organization working in a bi-modal manner is no longer adequate. It’s the least of two evils, and it’s allowed only when the organization’s members can’t progress at synchronous rates. Many IT organizations and enterprises that also carry out system integration business face problems and new opportunities as a result of the rapid evolution of the IT market.
“Many IT departments regard the bi-modal approach as the best option for pursuing new prospects and innovations without compromising on current operations. However, even an IT organization working in a bi-modal manner is no longer adequate.”
ADAPTATION TO THE CHANGING TECHNOLOGIES
Some of the system integrators in the market are spin-offs from the ITs of larger organizations, which have evolved and started to serve other companies. Most of these service providers are dependent on their main companies to a large extent and they run into many challenges even when they provide the most fundamental infrastructure and operating services.
The other kind of system integrators thinks that they need to be able to provide their own product and services, as well as solutions integrating new generation technologies to stay relevant in this environment. Their challenge is the rapid shift in the structure of the IT service industry.
And global system integrators are challenged with grasping the changing conditions of the local markets and adapting to them. The following are examples of the types of technological changes that may present difficulties for these businesses:
- Technology and business services will rely heavily on the contributions of specialized third parties due to the importance of digital transformation. Those which cannot bring together such an ecosystem and add new competencies like a Lego piece to their existing skills in line with the customer demands risk becoming mired in low-return activities like maintaining legacy IT applications.
- There is a significant gap between the standard service delivery model and the operational models that businesses should use if they want to develop their own products and services. Agile organizations regularly engage in iterative cycles of hypothesis generation, experimentation, analysis, and refinement, which require a different culture, governance structure, and mindset.
- In the markets where existing IT companies operate (e.g., Turkey), large-scale transformation projects do not produce and sustain the deep industry expertise and skills required in sufficient size and diversity.
- One of the most insurmountable challenges to continuing the work started and quickly seeing results is the so-called “Great Attrition” – that is, the departure of the talent which gained momentum with Covid.
- Because of how quickly technology and technical competencies evolve, a sizable market is necessary for a profitable return on investment to materialize. There may not be enough of a return on investment (ROI) for many next-generation system integration services to be delivered in shallow markets like Turkey.
- One of the most critical success factors for enterprise-level systems integration companies that aim for global markets is the ability to rapidly scale and expand personnel. The majority of today’s system integration firms that rely solely on internal resources to staff their operations lack the fast-sourcing methods and business methodologies necessary to take on truly massive projects.
- Within the next few of years, much of the work done by Turkey’s system integration firms will become commodity work that can be done for much less money elsewhere. Jobs like this will turn into money losers with a large sunk cost if they aren’t paired with next-generation IT services that bring value.
What, therefore, will become of the system integration firms currently providing their traditional services while also attempting to create new products and services of their own? Should they withdraw from markets that are becoming increasingly competitive? Is it appropriate for them to abandon their current service and establish themselves as competitors in untapped markets? Should they instead focus on developing their own highly lucrative and marketable products and services? In this case, there is no easy solution; in fact, the only way to go wrong is to try to do everything at once, inside the same organization, and without delay.
THE MUSCLES THAT SYSTEM INTEGRATORS NEED TO STRENGTHEN
Let’s break down the list of tasks into manageable chunks. To begin, it is necessary to get the house in order by focusing on the main business and making any necessary improvements. As I said above, I have recently had the chance to analyze the state of numerous system integration firms. These long-standing service providers all share a common issue: they lack a comprehensive method of monitoring revenue and expenses by project and service. Those that are successful in doing so can only do so with the help of annual projections and in-depth examination of the current state of affairs.
“These long-standing service providers all share a common issue: they lack a comprehensive method of monitoring revenue and expenses by project and service.”
The vast majority of organizations use year-end financial statements as a primary financial monitoring tool. The minority who do it monthly is not fully aware of the financial situation of projects or where they profit from. They see all the numbers as a total sum.
These companies may face difficulties and find themselves dealing with unprofitable projects due to factors such as fluctuating demand, rising labor costs (which account for the bulk of operating costs), and poor pricing and contracting practices.
A turnkey contract given on the basis of several faulty assumptions can rapidly wipe out small profit margins, acquired via hard effort and constant employment problems, in a competitive field. At best, they leave behind a year of losses; at worst, they can force the company to “mortgage” more than a year’s worth of operations and “pour thick concrete” over new service areas or product development initiatives that are still in their infancy.
What needs to be done to provide services in fundamental business areas can be summed up in a straightforward recipe.
- Creating a system for handling finances (Management P&L) that treats each project like a subsidiary of the holding company
- Creating a system that allows for regular (ideally bi-weekly or at least monthly) company-wide and project-specific profit-and-loss analysis
- Creating a “new business evaluation” process where the sales of new services and projects are assessed on the basis of certain criteria in a systematic way, with each type of project’s sales broken down into its own risk category and life cycle
- The compliance between the solution promised during the sale and the solution provided by the engineering team which forms the basis of costs should be monitored closely and these should be reflected legally in the contract
- Periodic control of all services and projects by non-project and competent eyes to ensure service quality, customer satisfaction, and service contract compliance
- Establishing and keeping tabs on targets and indicators to encourage steadily improved service efficiency and effectiveness
To sum up, every project needs to managed like a mini-company. The project lead needs to play the role of a mini-CEO responsible for the P&L, a system should be devised where monthly performance reporting includes metrics such as profits, loss, and quality.
I’d like to insert a comma here to talk about the system integration firms that serve as a service provider for other IT firms. While many of these businesses were founded to handle the IT needs of their parent corporations, they are now expanding their offerings to meet the needs of a wider range of clients to pave the way for new revenue streams. As an added bonus, the system integration projects they create for their parents’ businesses can be turned into products that they sell to the public. A few details though deserve your close attention.
Sales, contracts, and proper pricing with external customers are only some of the fundamental systems integration company management talents that many of these businesses lack. When their enterprises are massive in scale, the need to acquire these skills quickly and through painful experience can lead to systemic breakdowns that are difficult to fix. Although I intend to devote a separate article to exploring the product problem in depth, I feel it’s important to point out that, while it’s possible to commercialize a system originally designed for system integration purposes, doing so is inherently more challenging and fraught with peril than creating a product with a single, focused function.
It has always grieved me to watch how a journey that started with great hopes and good ideas turned into disappointment, squandering all the efforts in the case of new enterprises that were created without taking into account these aforementioned factors and building the necessary muscles.
Well, we have tidied up the outside and made sure everything is as predictable as possible on the inside, but we continue to see poor growth percentages and are losing ground daily in comparison to the pace at which technology is evolving. If so, I suggest that we develop our own product and innovate with cutting-edge services!
Part Two: The Road to Product Companyhood discusses the trials of expanding service offerings into uncharted territory, lessons learned, and pitfalls to avoid. I’ll do my best to break down the ins and outs of innovation machines, the depressing conclusions to intrapreneurship games, the difficulties inherent in accommodating employees who work at varying rates of speed, the conditions under which Agile Organizations, often touted as a panacea, can be effective, and the circumstances in which they end up as nothing but merely the trial versions of strategy consultancy company recipes.