Mixing it Up: Integration Opportunities

Despite a slumping economy, the need for systems integrators remains strong. Huge recent technology advancements are feeding a change in how integrators operate.<br><br>By Judy Silver and Mark Kagan

The systems integration market, despite economic uncertainties, is not only alive but faring well. In fact, some industry experts believe the overall market downturn has actually led to increased opportunities for systems integrators.

A downturn in the economy usually spurs enterprises toward consolidating or controlling costs to gain competitive advantages, and the current slump is no exception. Consequently, "the economic forecast for the systems integrator community is more positive than perhaps other parts of the IT industry," according to Olga Grkavac, executive vice president of enterprise solutions at the Information Technology Association of America.

The reason: Systems integrators (SIs) often pitch their services by providing a plan of action that accelerates the return on technology investments made by enterprises. Their compensation is often tied to these service-level agreements, ensuring that companies who hire them are better off working with systems integrators than going it alone. It's a rationale that corporate America is buying into.

"The [systems integration] market for communications services is around $14 billion worldwide in 2001 and is projected to grow about 20 percent per year, depending on who you talk to," says John Schmidt, vice president of new media and communications and SI practice leader at American Management Systems (AMS). Nevertheless, systems integrators who rely primarily on application deployments to generate revenue are struggling. It's primarily the integrators with their broader portfolio of capabilities—including business consulting, custom development and operations support—who will flourish.

Another success factor for systems integrators is vertical industry expertise. Those SIs who have active experience in vibrant markets are going to do better than generalists or integrators who have established a practice in a less dynamic environment.

Integration or Outsourcing

The distinction between outsourcing and systems integration (SI) is becoming blurred because integrators and their clients are finding that they often can't do one without the other. For example, Bill Koff, vice president and CTO of Computer Sciences Corp. (CSC), cites the large amount of integration work that was part of CSC's business process outsourcing contract with Enron. This energy pipeline manager tracks pockets of surplus energy supplies and then sells it to geographic areas that are willing to pay for that available energy. Enron must integrate its operational systems with a host of players in the energy industry supply chain—from pipeline operators, to refineries, to regional depots.

Newer technology components, such as application servers, portals and content management, are becoming a standard part of systems integration, which in turn impacts the way integrators work. "There are more standardized components in the [systems integration] toolbox for doing the pure enterprise application integration," says Koff. He contends that integration projects are also becoming more complex, partly as a result of another technology component that's growing—knowledge or content management. On the one hand, organizations want to have corporate knowledge well integrated into all aspects of their systems; on the other hand, they don't want to deal directly with operational complexities.

Having more robust, mature tools on the market reinforces the need for outsourcing and systems integration. "The integration challenge is still difficult," says John Schmidt, vice president of new media and communications and SI practice leader at American Management Systems (AMS). "Instead of building integration software, integrators are using off-the-shelf tools. If anything, [middleware] actually helps drive more complex, integrated environments, which in turn generates more SI business."

But, while SI is often thought of as a convenient contracting mechanism and a way to hold one vendor accountable for a multi-vendor solution, Schmidt envisions the emergence of systems integration as a distinct discipline, rather than the adjunct to other activities, such as application deployment. He sees the relationship between systems integration and outsourcing becoming even more closely intertwined in the effort to manage enterprise solutions.

—J.S. & M.K.

The Key to Success
The federal government offers a good case in point. Dr. John H. Warner Jr., corporate executive vice president of Science Applications International Corp. (SAIC), sees agencies paying increased attention to systems integrators. "There's growing demand for systems integration, but it depends very much upon the vertical markets," says Warner. Based on the experiences of the systems integrator, which has revenues split equally between government and commercial markets, Warner concludes, "Some of this integration activity will be bolstered by regulatory events, as in the healthcare and energy arenas."

Grkavac believes that systems integrators will continue to see improving opportunities in the federal sector as agencies struggle to meet congressional mandates to do more with less, and as the culture in Washington presses for a bureaucracy that behaves more like the private sector, in terms of responsiveness to constituents.

For example, she points to the Customs Bureau's technology modernization contract and the National Security Agency's Project Groundbreaker. The latter is a major initiative to outsource NSA's external computer operations involving its non-critical telephone, Web and desktop computing systems (mission-critical systems will remain within the agency). These are the types of projects that the Bush administration is looking to support, even if total federal IT budgets do not increase overall.

"As senior agency executives are confirmed [by the Senate], they are going to [be] more attuned to information technology, more receptive to using commercial vendors, and less concerned about doing things the way the agencies used to," says Grkavac. "Unlike many of the Clinton appointees who took office before the explosion of the Internet, these new appointees will be more familiar with technology and will be more likely to support upgrades within their respective agencies."

Jim Kane, president and CEO of the analyst firm Federal Sources, agrees. "The federal market will not grow at the rate it had been growing, [but] government projects tend to require large-scale resources, including integration and support," he says.

Telecom Convergence

Sharing mission-critical business information across disparate systems became a major challenge for one telecom company while it was building local and regional optical networks for the converging telecommunications market. Voice, data and video services—at one time discrete businesses—are now increasingly seen as traffic to be managed over the same infrastructure. As a result, the carrier saw an opportunity to promote information sharing to better service its U.S. customers in 21 markets by implementing third-party middleware applications to achieve enterprise application integration (EAI).

The carrier selected American Management Systems (AMS), an international business and information technology consulting firm, to provide the integration for the EAI project. AMS began work on the project in January 2000.

The EAI solution deploys third-party middleware to transmit mission-critical business information across applications. Specifically, information is retrieved from a database application using special adapters to customize client-based applications for circuit troubleshooting, transport order entry, and order activity reporting and fax distribution to the client's trading partners. The adapters provide the interface processes between the database and the middleware vendor.

In a second phase, which began in June 2000, the team used existing EAI object relationships to pass customer, order and product information to a middleware system for invoice processing. In addition, the EAI project provides information to an electronic data interchange (EDI) gateway, electronically linking order activity with the organization's trading partners. AMS also planned and managed the conversion of existing customer orders into the vendor's new order format.

As is frequently the case in integration projects of this scope, two other service projects were added to the original project. First, AMS created a trouble-ticket center that provides customer service representatives with realtime, anywhere Web access to customers' trouble tickets. This has greatly improved responsiveness to customers.

The second integration project enhanced the functionality of a network monitoring application that previously sent all equipment alarms to the network operations center, regardless of equipment status. Following completion of the project in December, the application now filters out alarms from network equipment that is active but not yet in service, since network support personnel want to be informed only about alarms for equipment that is actually in service. Due to the robust enterprise architecture initially developed by the EAI team, the new integration effort reused the existing circuit correlation integration architecture to supply equipment status information to the end user, avoiding the need to rebuild an end-to-end solution. By reusing enterprise architecture EAI components, the integration team was able to reduce expensive rebuilds to the system.

—J.S. & M.K.

E-Business Driving Engagements
The overwhelming share of integrator engagements is driven by e-business. In this area of activity, systems integrators are well situated to help customers in all vertical markets. "With the consolidation of telecommunications companies—and with software and hardware technologies becoming more of a commodity—services are becoming increasingly important. This puts systems integrators in a prime position. They will be a key to the next generation of the Internet," says Bill Whitehair of Cable & Wireless (C&W), where he is vice president of the telecom carrier's sales development for a-Services, a joint venture application services provider (ASP) with Compaq and Microsoft that provides managed computer solutions to C&W's business clients.

Professional services firms, which include integrators and consultants, are increasingly entering into partnerships with product companies, such as Portal Software, which does billing and customer care for IT services organizations, or Lucent Technologies, which provides customer care solutions for competitive local exchange carriers (CLECs) and incumbent local exchange carriers (ILECs).

"From what we've seen, [customer care] vendors are looking for SI partnerships. They want to become more software-focused and give up the services aspect of the business to the SIs," contends Jason Briggs, an analyst for The Yankee Group's billing and application strategies group.

It's all part of closing the e-business loop—creating integrated links between e-commerce initiatives designed to sell products and customer relationship management (CRM) systems designed to acquire and retain clients. The explosion of e-business has created a new breed of e-systems integrators who focus exclusively on these types of projects. In many cases, they have put a dent in the market share of their more established "legacy" competitors.

Traditional systems integrators have been overshadowed by innovative companies, such as Razorfish, which helps clients worldwide formulate and implement business solutions by leveraging digital technologies across platforms, networks and devices.

Indeed, the last two years have been difficult for so-called legacy integrators because their traditional approach to projects gives rise to long sales cycles. "However, once they get the contracts, the lifecycle of the projects is longer too," states Paul Hammer, head of the Technology, Media and Telco (TMT) group in the Washington, D.C. office of Houlihan Lokey Howard & Zukin, a private investment bank. "These contracts represent much larger total amounts of revenue over time, [and thus] more stability and a more robust link into the customer."

As a result, even though sales cycles are actually getting a little longer, the legacy systems integrators are still feeding off traditional engagements and can therefore more easily finance themselves through the current downturn than can newer integrators who generally work from contract to contract.

Moreover, established systems integrators have processes already in place for reviewing, bidding, executing and conducting post-mortems. "These aren't in place for the new e-architects," points out Hammer.

Awareness, Technology Affect Trends
As a discipline, systems integration is undergoing massive changes due to a variety of technological advancements, as well as changing attitudes. The primary driver has been the growing awareness of the need for "enterprise" applications and fully integrated value-chain solutions, as enterprises of all sizes strive to reduce costs through operational efficiencies and process automation within and between corporate borders. In other words, systems integrators are developing repeatable solutions that can help companies streamline their internal operations, while simultaneously establishing digital links with trading partners (both suppliers and customers).

Building these intra- and inter-organizational relationships is the only way to meet customer expectations for access to information about transactions. Middleware architectures are now robust enough to support the integration of multi-corporate networks, but the products still have to be integrated into the operational systems of each of the companies.

Ever-increasing interest in the Web means that enterprises require a different set of skills than before, when organizations did not deploy systems that could interact with other systems—the so-called stovepipe back-office solutions. The rise of the Web as a central organizing principle for interaction within corporate systems, as well as between organizations—has put a premium on repeatable, commercial off-the-shelf solutions. The need for such solutions, while stoking the heat in the integration marketplace, has further encouraged the movement toward partnerships and alliances because "it's prohibitively expensive to develop custom applications," says Federal Sources' Kane.

New forms of systems integrator partnering initiatives range from joint ventures, licensing arrangements and guaranteed sales deals to outright purchase of assets.

For instance, Cable & Wireless, an international provider of the Internet backbone, depends on systems integrators to help sell and deliver solutions for its joint venture ASP, a-Services. "We recruited systems integrators because they're critical to our value proposition," explains C&W's Whitehair. "In order for us to deliver our end-to-end solution, we need the systems integrator to talk to the small- and medium-size businesses, and make sure that the customer's LAN is upgraded and meets our requirements before we bring in the big pipes and turn them onto our ASP service."

The billing and customer care market illustrates the changing role of systems integrators. In the 1980s, integrators were called on to build and maintain these systems. In the 1990s, they had shifted to integrating third-party applications, such as billing, mediation and order management systems. "Going forward, systems integrators are going to focus along the lines of higher-level systems consulting, rather than the day-to-day maintenance and integration of systems," says The Yankee Group's Biggs. "We're slowly moving toward 'plug and play' applications within the corporate enterprise. But, even though systems have open APIs [application programming interfaces], the reality is that every implementation is different."

A Bright Future
Opportunities for systems integrators will continue to grow as more and more enterprises become aware of the critical need for enterprise applications and fully integrated value-chain solutions. The current economic doldrums can only reinforce that realization, which means that bad times overall can mean good times for the integrators. However, contracts won't automatically flow to systems integrators simply because they throw their hats into the ring. Rather, systems integrators who focus on end-to-end process consulting rather than on day-to-day maintenance and integration of systems will be the ones that rise to the top.

Finally, the integrators who possess both breadth and depth in technology will be in high demand, even if those skills are gained through collaborative means. Most likely, the larger integrators will have the advantage over smaller ones, if only because they can put together teaming arrangements in a more timely manner. But, as always, the integrators—large and small—must meet the end user's expectations for quality and delivery.

Judy Silver and Mark Kagan are freelance writers for the Washington News Bureau, specializing in technology reporting. Reach them at editor@esj.com.