Whilst we are witnessing a dramatic growth in the number of IT project engagements, together with revenue volumes, unfortunately, we are experiencing a continued decline in the gross margin for these projects. To cope with the trend of diminishing returns, successful systems integrators (SIs) and product companies are employing a new go-to-market strategy - repeatable solutions.
The definition of a repeatable solution is: "A replicable, pre-partnered, pre-integrated solution to a specific business process improvement or automation problem."
A repeatable solution may have one or many of the following components: fixed price; standard delivery methods and practices; guaranteed performance levels; "fast start" pilot solution and rapid prototyping capability; reseller acting as a contractor under one of the big five SIs' control; joint research and development marketing and/or sales; and joint brandingWe know that the requirement to contain margin erosion is a key driver for repeatable solutions; however, what is causing this trend in Australia?
Escalating wages for required skills: We have a job vacancy rate in IT in Australia of 43,000 positions. Competent professionals can name their price.
This trend started with R/3 implementations and continues with e-business solutions development.
Price competition: As more and more resellers enter the systems integration market (seeking to create value for their customers and to differentiate their companies by building service capability), the competition for projects becomes intense. Unfortunately, the intensely competitive nature of the market has seen pressure put on margins. We've seen recent network integration bids priced merely to cover wages.
Opportunistic approach to the market: Many resellers lack a coherent market planning approach, whereby growth is driven by carefully constructed proactive campaigns in segments where capability and focus will ensure differentiation.
All too often resellers are "ambulance chasing" - running after deals that have emerged because someone else, either a competitor or a customer, has created demand. When resellers indulge in demand fulfilment versus demand creation, the key differentiator will commonly be price.
The drivers outlined above are going to mean margins will not improve for systems integration services in the near term.
The ability to participate in repeatable solutions offers resellers a glimmer of hope on the gloomy profit horizon. The timing is right to move now because of the several key drivers in the Australian marketplace.
Vendor and customer acceptance of alliances: Customer challenges are becoming increasingly more complex, driving increasing complexity of the solutions being deployed to address customer need. Time-to-market issues, together with the requirement to contain risk and cost are driving customers to seek "complete solutions". Customers understand and accept that one company can not have best of breed in every solution segment, and, therefore, currently there is an increasing acceptance of complementary alliances and consortium solutions.
Carol Johnson is principal consultant for channels and alliance practice Pelorus International. Reach them at: www.pelorusintl.com.au