Traditionally, system integrators (SIs) had a very strong position in the software distribution/supply chain, with software vendors relying on them to sell their software products. SIs used to have a clear buyer persona (IT staff) and the technology they were very well familiar with.
However, the massive wave of global digitization affected system integrators as well, posing some major challenges for the traditional project-based business model.
Digitization requires rethinking among all participants. As the digitization partner for the customer, the classic system integrator faces the challenge to be the “growth engine” already in the bidding phase in order to support the customers on their way to digital business processes. In the cloud environment this means to enable customers to connect their customer-specific business processes to new software-as-a-service products that help manage these processes.
– Frank Strecker, SVP Global Cloud Computing & Partner Eco-Systems, T-Systems International GmbH
Not only do system integrators now face increasing competition from other SIs as well as SaaS software vendors, but they also have now to deal with entirely new buyer groups and technologies.
In order to survive, it’s high time for system integrators to seek answers to the question how to address these challenges in a most efficient way possible. Below we would like to take a closer look at these challenges as well as ponder on some possible solutions.
SaaS vendors largely adopted the direct sales strategy, disrupting traditional software distribution chain
System integrators (SIs) have always been the binding link between software vendors and end customers, delivering the deep know-how of the systems they are specialized in and making sure that these systems would play well with existing IT estate. Historically, system integrators delivered their service on a project-to-project basis, moving from one client’s project to another.
The appearance of Software-as-a-Service (SaaS) indicated the shift in this clear position of SIs in the software distribution chain. If previously, about 80 percent of software sales relied on channel distribution, nowadays most SaaS vendors pursue the direct sales strategy with great success. It wouldn’t be so alarming, though, if only smaller SaaS companies adopted this strategy; unfortunately for system integrators, the majority of large SaaS players like Salesforce, Zendesk, and even Microsoft went for direct sales too, some more successfully than the other.
To be fair, SaaS vendors don’t implement the direct sales strategy exclusively, referral programs, reselling and application marketplaces are among most popular sales strategies too. However, that doesn’t make the life of system integrators any easier. Quite the opposite, there are even more sales channels that do not involve their participation at all.
Line of Business increasingly buys software bypassing central IT
Previously, system integrators almost exclusively talked to IT departments as they were the ones who would make final buying decisions, but the recent 2016 channel-driven survey by Nintex confirmed the trend that has been noticed quite some time ago. As digital transformation of many businesses progresses, other players outside IT departments, like e.g. line-of-business (LOB) leaders, Sales, Operations and Marketing departments, take an increasingly decisive role in tech buying processes or even buy solutions bypassing IT altogether.
Coming to think of it, this new trend shouldn’t come as a surprise. On the one hand, modern LOB users are more digitally savvy than they used to be, as SaaS is mostly about self-service, offering its users simple usability and the ease of implementation. On the other hand, it still takes IT staff at least two months on average to add a new software application to the existing IT estate, even if this application is as easy as MailChimp.
No wonder that departments outside central IT take software acquisition in their own hands. And while it might pose certain threat from the central IT’s perspective, the indications are that this trend would not go away, but quite on the contrary, will increase over time.
New technological challenges
Many medium and larger companies nowadays see implementation of IoT as a necessary step towards successful digital transformation. Although system integrators cannot be expected to become experts in the integration of IoT devices per se, they do need to find a way to include support for IoT implementation into their portfolio.
In fact, the recent 2016 survey by TIA [PDF], Telecommunications Industry Association, revealed that 28 percent of US enterprises rank system integrators as top trusted choice for IoT implementation partner, largely due to the close engagement with system integrators through other projects. In general, 59 percent of respondents said that for IoT projects, they would choose “partners that offer hands-on, comprehensive services such as system integrators and end-to-end service providers”.
And as if the need to address such high expectations weren’t the point of concern already, even here system integrators might see a strong competition from software platform companies like Salesforce.com or SAP. These were named as a “trusted IoT implementation partner” by 16 percent of respondents, according to the same survey.
How to kill three birds with one stone?
All the points mentioned above indicate that system integrators do face some major challenges nowadays. In order to survive, they need to somehow reinforce their relationship with software vendors, address new buyer groups that have increasingly high spending power but largely low affinity to existing IT buying/maintenance cycles, and add new tech know-how to their portfolio.
We believe that it is important for system integrators to transform themselves by moving away from project thinking to product thinking.
System integrators need to adapt product-based business model to survive
System integrators have a deep understanding of the systems they are specialized in as well as deep customer relationship and trust.
They should start small by building simple integration templates for key systems and applications – and deliver deep but at the same time highly customizable self-service integration solutions for the systems of their expertise.
Adopting the product-based business model by packaging, marketing and selling their skills and know-how as a standardized, easy-to-use, self-service product can, in fact, help system integrators address all three major points of challenge.
First, since these are standardized self-service integration solutions, system integrators will need to build each solution only once and then distributed it via e.g. own integration marketplaces. This will enable them to reduce the costs per solution and at the same time free own IT resources for other, new projects (for example, support of IoT implementation).
Secondly, with prepackaged and customizable, self-service integration solutions, system integrators will be able to successfully address the needs of LOB users in enterprises. In addition to that, the reduced costs will also enable them to offer their products to an entirely new group, namely to the SMBs market, which integration needs are largely underserved nowadays.
Last but not least, through the extension into new markets and addressing new buyer groups, system integrators will gain additional added value in the eyes of software vendors. The latter will, by default through system integrators, gain access to new markets too. Thus, system integrators will redefine their own role from ‘just integration experts’ to ‘integration brokers’.
What do you think?
Please share your thoughts with us. Have you noticed any changes in your market indicating of some major issues you might face soon? Can you think of any viable solutions for these issues? Do system integrators, in your opinion, need to change themselves in order to survive, and if yes, how?
Reference case: How a Dutch system integrator went from project selling to product selling
All the theory put aside, we would like to share a real story of Apora, a Netherlands-based system integrator who turned their know-how into an integration product.
Apora has been implementing Zoho solutions for about six years and recently partnered with Oracle to provide implementation and integration for its Oracle Sales Cloud. In addition to that, Apora’s expertise also lies in the implementation and integration of Google Apps and a few other cloud applications.
The company identified SMBs as a new market opportunity they wanted to expand to. Apora reasoned that custom-built integration solutions were in most cases out of SMBs’ financial range. Yet at the same time, SMBs’ increasingly use SaaS applications and, therefore, their need for integration is constantly rising.
So, the Netherlands-based system integrator decided to channel their expertise in system integration of Zoho CRM, Oracle Sales Cloud and other applications into self-service integration packages under the umbrella of its daughter company Aplynk.
Now Apora offers standardized integration solutions to a wider range of customers as well as to their partners and software vendors. At the same time, by delivering these products on a self-service basis, the company can reduce their own efforts invested into integrations.