Osama Qadan, Technology panelist at CPI, shares his on the challenges faced by SIs in the post-COVID era
System Integrators have been the catalyst driving the digital transformation initiatives in our region over the past three decades. They have adapted their business models and expertise over the years to fulfill a growing number of projects with technologies as diverse as the countries they operate in. System integrators work in a continuous mode of techno-commercial operational activities to fulfill the promises and commitments made during their sales cycles. That’s the nature of the business and the successful ones have perfected this over the years.
The COVID era has presented a new environment for system Integrators. This era is marked by a clear push by governments and enterprises to adopt digital as a standard method of doing business. Many technology companies coupled with their channel partners have pushed forward to comply with the direction of their clients and the explosion of FinTech services is the clearest example of the success in this field. Governments and customer-facing businesses had to change their operating models to allow clients to do what they used to do and even more with little or no human interaction. To many companies, the COVID era presented an opportunity to grow and expand into new business lines to cope with these new requirements.
However, there is another side to this coin. System Integrators have suffered during the COVID era with a number of challenges that have persisted even after the decline in the impacts of the COVID period. These challenges cast a long shadow on the profitability of these companies and can risk their sustainability over the long term.
Global shortage of chips: regardless of the reasons for the chip shortage phenomenon, technology vendors have been hit for the first time ever by the reality that their equipment are not manufacturable anymore. Lead times for standard and regularly ordered equipment running in the months (or even more) is now a common response by most vendors. This presents a challenge to System Integrators that their designs are not implementable anymore. Substitute models are now mandatory either from the same vendor or from other vendors. Sacrifices in performance and functionality are normal byproducts and there’s no way around it.
Volatility of prices: supply and demand is now part of the technology supply chain landscape. What we used to hear about in the commodity business has become part of our tech industry that has fought for so long to be different and niche. System Integrators face the reality that their price proposals are outdated by the time they get awarded. Arguing with vendors to stabilize prices given the chip shortage and long lead times is an experience that many of us are now facing on daily basis and surely no one is enjoying it.
Long lead times to deliver equipment: in addition to the above reasons, logistical lines have been plagued with over stocking in ports and airports and clearing this backlog is a process that will take time. Customers have to adapt that their projects will no longer finish on time for reasons that are beyond the control of their suppliers. Nonetheless, no one can argue that this comes with frustration and anger in some cases. However, little can be done here for the foreseeable future.
Cost of money: global federal reserve banks have resorted to the tactic of increasing interest rates as a way to combat inflation. This means that system integrators relying on banks to finance their businesses are faced with the fact that their bottomline on projects will suffer. This problem gets compounded, of course, with the project plans running over budget.
Overhead cost over-runs: this is where the CFO’s come into play. Salaries and rents continue to be a requirement that need to be paid on time to sustain the business. However, when a project takes twice or more time to get implemented, staff have to stay longer on the bench before they are called upon to implement and project managers to raise invoices to clients. The overhead becomes a sizable budget line item that will only show its ugly head at the end of the year when all is said and done.
All of the above factors demand that clients and their long-term partners have to work closely together to weather this storm. Flexible payment terms and more room for price negotiations are important not for system integrators to make more money but rather to survive. Ultimately, the ecosystem will survive this crisis but some casualties will result. Hopefully, survivors will outnumber the casualties. Let’s keep our fingers crossed.