With the economy in hyper-drive, systems integrators are now turning their attention to managing business relationships.
Challenges include juggling partnerships with vendors and distributors, managing client expectations and hiring and retaining competent staff, as well as other issues such as market uncertainty associated with the GST and keeping up with changing technology.
"The main challenge is a positive one - managing the growth of the company," according to channel services company NetStar's marketing manager, Oliver Descoeudres. "The market is very healthy right now. We're moving premises and we're filling up the new place faster than we expected. It's a challenge finding suitable staff, both sales and technical."
The infamous skills shortage means finding and maintaining competent staff is a perennial problem right across the IT industry, with figures from the IT&T Skills Taskforce placing the current job vacancy rate as high as 50,000.
"The skill shortage exists big time," admitted Jonathan Fisk, chief executive of systems integrator Senteq Information Systems. "There are spiralling salaries and a mobile technical workforce. It benefits some people but the long term is not good for the economy because it slows down companies. We do pretty well with people because we offer a lot of challenges and variation, but it is a problem with every business at the moment."
With skilled professionals commanding sky-high salaries, employees are a company's greatest investment and most costly asset. The challenge for the integration company is to fully utilise its staff to maximum gain, yet provide sufficient variation and incentive to keep them happy.
"From the services perspective we have spent an enormous amount of time regearing our business," said Lyle Potgieter, CEO of network integrator Logical Asia Pacific. "There's a trap if you have staff on board that aren't utilised, because it costs a lot of money. It's a trap we've managed to avoid. We've been securing very good staff based on reputation, but smaller players might find it more difficult because they don't have the profile."
Selecting and managing appropriate partnerships is another ongoing concern for integrators, particularly with the high level of mergers and acquisitions in the technology sector.
"Ideally we pick and choose our partners and keep a smaller set, rather than an ever-increasing number," said NetStar's Descoeudres. "We choose vendors that are complementary to our business focus [providing solutions to the Internet economy], strategic rather than just box provision and best of breed in the market. The problem is that strategic vendors, especially small ones, tend to get swallowed up. Ideally they get bought by an existing partner, not a competitor, otherwise it can be awkward."
In addition, integrators often have to grapple with unrealistic client considerations of price and timelines. "There is still an expectation that the cheapest price will provide the best value for money," said Peter Madden, general manager of international training group Interim Technology Solutions. "This is a product of the fact that IT managers in general have not broken the silicon wall into the boardroom. This results in a general lack of understanding of IT in the boardrooms, with IT information presented second hand to senior executives and decisions often made on a faulty value for money perception."
This problem can be exacerbated by competitors quoting low prices with unsustainable low margins to win business.
"We've been walking away from deals because we're committed to keeping sensible margins, and we know our competitors are going in at cost," said NetStar's Descoeudres. "It's an ongoing problem but it was made worse by the Y2K slowdown towards the end of last year. Companies are trying to win business to claw back lost revenues, even if it is not sustainable."
This trend has continued with a slowdown in spending ahead of the introduction of the GST on 1 July, with customers hoping to cash in on cheaper prices following the introduction of the new tax system.
Analysts predict that the GST will cause the price of hardware to fall, while the costs of software and services will rise.
Currently, hardware sales incur a 22 per cent wholesale tax, while software and services are untaxed, but after the GST is introduced, all will be taxed at the flat rate of 10 per cent.
"The wholesale tax on PCs is 22 per cent and that will disappear and become 10 per cent," explained IDC analyst Logan Ringland. "Companies can claim back that 10 per cent as an input credit, but consumers can't. There will be an extra 10 per cent on software, but companies can also claim that back. So for businesses, the price of hardware will be 22 per cent cheaper and software will stay the same. But for the consumer, the hardware price will fall and software will rise. It will probably be a 5-7 per cent reduction over all, but we could see more bundling of software, which would change things."
Logical's Potgieter said he has had a number of customers postpone their purchases in the expectation of decreased prices after the GST.
"We can't change the minds of corporations or governments, so we just have to regear our processes internally so we're ready to go with the rush on 1 July. The media is saying that businesses have been impacted anywhere between 5 and 30 per cent, but we won't know what the impact on our business will be until the end of June."
Interim's Madden acknowledged that faulty cost-value perceptions have been overcome in some organisations by including the CIO or IT Manager on the Board, and by having acquisition policies ranking whole-of-life costing models, valuing schedule or performance equally with or ahead of price.
Bone of contention
But timelines and fixed price quotes can still be a bone of contention. "Clients do not give the same recognition to systems integration projects that they give to other construction projects," Madden said. "As an example, one of our clients will not given any estimates of when their civil engineering project program will deliver in a specified area as they claim it is too hard to predict because of the many variations which affect progress. But systems integrators cannot get the same recognition of our project variations. Steering committees still want firm estimates and schedules at Day One of a project and fixed price projects are still the norm. Where are the phase-limited projects, the "cost-plus partnering" projects, which deliver better solutions and usually at better value for money?"
Additionally, tendering frameworks often do not clearly articulate the clients' true needs, Madden maintains. "Clients often use too strict a tendering framework, which requires respondents to second guess what the real requirements are. There is limited or no ability to discuss tender documents with clients as part of the response process and the tendering process is designed around getting cheapest price at lowest risk to the client. The process is often biased by non-core processes, for example limited information given to protect the incumbent."
While integrators may be forced to deal with clients who lack technical and commercial understanding, the challenge is nonetheless to implement a solution that provides true business value to those clients.
"The biggest issue facing integrators is ensuring that they are creating value for customers, not just adding value," said Senteq's Fisk. "The challenge is to ensure that our activities with customers deliver real business benefits to them, such as increased market share, specific cost reductions or increased shareholder value. As the integration market becomes more fragmented, customers are looking to their partners to provide them with solutions that achieve significant benefits, not just minor, incremental cost reductions."
The change in focus from technology and customer specifications to a concept of working alongside customers to help them achieve wider business goals has been a key shift for the channel, Fisk argues.
"One of the things we've been working on very strongly is how to target our efforts and services to the business requirements of clients rather than the technical ones. That's one of the critical success factors for our business," Fisk said. "The role we play in implementing solutions addresses more than the technical requirements. With the emerging areas of e-business and the Internet, we work with a customer to achieve their business fundamentals."
As the Internet economy revs up, businesses are increasingly employing systems integrators to implement e-commerce solutions. Faced with the challenge of seamlessly blending e-commerce systems with a company's existing IT infrastructure, integrators are often frustrated by the fact that e-commerce projects may not even fall under the jurisdiction of the IT department.
"There's been a lot of people pulled away to e-business projects and we find ourselves working with a special e-business group that has a very different charter to the IT already in place," explained Logical's Potgieter. "We are looking at how to get e-business to work with IT already in place. The challenge is to educate CIOs to make sure they have input into these projects. It will cost Australian businesses a lot of money if they are reinventing the wheel in a separate e-business team, when they have three quarters of the infrastructure in their normal IT systems."
While the technical requirements of e-business infrastructure differ from those of traditional business, it is imperative that the new system is connected to and interfaced with legacy applications.
According to Interim's Madden, the major points of difference are:
- -E-business often requires the use of new, less proven technologies, so the technology is potentially less stable and the risks are higher.
- -The application architecture required is most appropriately n-tier.
- -Enabling technologies become obsolete more quickly.
- -The e-business infrastructure is more complex, requiring more components (telecommunications, systems and networks, desktop systems, intranet applications and e-business capability) managed with greater discipline.
"In addition there are requirements to interface, via gateways, with legacy systems, or any investment in e-business will be prohibitive. Data replication and duplication, and the inherent time delays involved are major show stoppers," Madden explained. "An integrator needs to maintain currency of expertise in all major architectures or target market segments that are restrictive in what they can implement. The integrator must also have knowledge of legacy technology and CRM and ERP systems to enable effective gateways to be identified, utilised and implemented."
While the rapid pace of technological change means more homework for the systems integrator, it also makes things easier, according to Peter Suchting, vice president of general product at Australian software and services company Mincom.
"From the perspective of pre-integrating solutions, technical tools like enterprise application integration (EAI) are simplifying the way we can do it," Suchting said.
Yet while keeping up with technology and preparation for GST are certainly important, the key theme for systems integrators seems to be managing relationships with business partners, clients and staff.