I have meant to write this post since quite a while after hearing and learning a lot about the changes that are happening and travelogueing the system integrator (SI) industry.
For the longest time SI have been able to make a very good living by understanding customer requirements very well and applying that understanding to enterprise software implementations. In the course of the application of the customer's requirements to the enterprise software, the dreaded customization process was an inherent business development engine for the SI. The more the SI was able to understand a customer's business, the more likely it resulted into the further customization of an enterprise software package. That not only resulted into more immediate implementation work, but created follow up business with every update and patch the customer would decide and be forced to take by its enterprise system vendor, since this re-triggered a new wave of validation and testing. Possibly updating documentation and training materials.
Enters the cloud
There are many benefits to the deployment of cloud based solutions - but they also come with a largely take it as it is approach. Some vendors in the past even proudly stated that a cloud based solution does not allow for any customization at all - but that is rightfully changing in the last quarters, with e.g. Workday allowing more advanced customization techniques.
But the real damage to the SI community has been done - no matter how much more the vendors will allow to customize - here are two data points that show how the SI business has changed:
The largest SI partner of a leading HCM cloud product in North America, that does based on independent estimates 20-30% of the North American business - is a 130 employee company with approximately 90+ consultants.
The expo show at the yearly user conference of one of the larger HCM cloud providers featured only 2 larger booths - the rest was smaller stand up booths. Contrast that with the recent user conference of a mixed on premise and cloud provider where the were over two dozen large SI booths - most of them multi story.
Strategies going forward
So for the SI's to remain the companies in the future, that they are today and what they used to be - they need to identify new services and offerings to ensure revenue and growth keep intact.
Services shift – SI workloads and revenues are under pressure due to the lower implementation complexity of SaaS products. So it comes back for SIs to switch from lesser paid roles to roles that have a future in the new SaaS reality that is dawning on enterprises. On the lower end this can be testing services. The continuous release updates by the SaaS vendors creates a testing burden on their customers and providing a system validation service as a turnkey service is a viable business. From there SIs should explore higher paid services such as the creation of training materials, the recording of online tutorials and the hand holding and training of enterprise employees when a new release becomes available. And ultimately there are even higher paid validation services in the area of system certification e.g. in regards of compliance with public safety and heath standards. Likewise there is higher level news service opportunity in validating and documenting new upcoming SaaS releases for specific customers groups.
New services – We see the need for both a cloud architecture as well as cloud integration services. And while SIs have setup numerous cloud practices, the integration aspect across different clouds and cloud and on premise is still in its infancy. But this will be a sizeable chunk of SI revenue that can be derived from the cloud – so it’s important to prepare for this upcoming business. It gets more challenging going forward, as the SaaS providers are trying to change the integration game by building integration as a provider delivered feature – see the recent plans of Oracle to integrate Fusion Financials and HCM with Salesforce.com’s CRM products. And how to invest and try to get a leg up on the competition was recently also demonstrated by Deloitte, who are building the integration between NetSuite and Oracle Fusion HCM.
New product opportunities – While today most SIs live and breathe in the ecosystems of the respective vendors they partner with, the cloud gives SIs the option to create new products that integrate and create a value add with the older still running on premise products of their customers. And if architected and built right – a piece of complimentary business automation to on premise enterprise system may well work across on premise vendors, offering the SI the opportunity to grow beyond the original single vendor ecosystem, usually dictated by the technology choices of the vendor.
3rd party maintenance – Though this is a tricky subject in regards of vendor relations – we expect a growing number of enterprises thoroughly evaluating 3rd party maintenance options. With the advent of enterprises moving their automation to the cloud – there will be remaining islands of automation that will have to be maintained. And while they will ultimately be replaced –enterprise may not want to pay for the full cost of maintenance anymore and look for 3rd party maintenance. So while not a very long term business field – we see a growth in this market for the next 3-6 years depending on cloud adoption by enterprises and on the pricing and product strategy of the on premise vendors.
New business rationale – Finally the cloud allows to de-emphasize technology and shift from vendor specific technology choices to a business rationale that focuses on outcomes. We are already seeing enterprises questioning technology less as long as it’s in the cloud (and of course safe and secure etc). Herein lies the opportunity of SIs to create attractive automation portfolios regardless of technology base, potentially cross vendor, ideally complemented with own product offerings – with a strong focus of selling outcomes to enterprises. SIs capitalizing early on this trend and creating barriers to copy to the competition with investment in own products will do well, based on conversations we have with forward thinking and innovative enterprises.
P.S. And for those wondering on the origin of travolved - I am paying homage to the language that I learnt before English, which is Italian - and Italian has this beautiful verb travolgere - which stands for as much as to sweep away, to overwhelm. Anglicists and Romanists alike may please pardon the free conjugation of the verb in an English text. And then... all analysts need to work on an unique brand, I am sure you got that already...