Web services and outsourcing could be the one-two punch that knocks out the systems integration industry, research firm Yankee Group
noted in an advisory Monday.
With IT spending dollars under consistent scrutiny since the downturn of 2001, many U.S. and European companies are taking a serious look at getting more bang for their buck. As a result, Yankee Group found, they’re opting for business approaches with Web services
According to the report, the U.S. Department of Commerce’s Bureau of
Economic Analysis shows capital spending (money spent on infrastructure) has
risen from the mid-teens in the 1990s to more than 30 percent in 2003. But,
the report states, executives are capping their expenditures these days
because they are not seeing the return on investment (ROI) promised in the
initial IT deployments. The report said the European market is
experiencing a similar trend in spending habits.
Siew-Joo Tan, a senior analyst at the Yankee Group and author of the note,
finds technological and overseas alternatives for businesses mean less need
for project or application integration to run smoothly; instead, companies
are turning to software and other companies for a thrifty solution.
That’s bad news for system integrators like EDS
Sciences Corp. and Northrop Grumman Information Technology, who will have to
settle for smaller contracts in lieu of the large, pricey contracts to which
they are used to fulfilling. Instead of enterprise-spanning integration projects, integrators should expect to see smaller projects with a clearly defined and limited scope.
“So, if you think about it, in order to get the same amount of revenue now with each project being smaller, you need a lot more projects to make up your revenue,” she said in an interview with internetnews.com.
The advisory said a typical cost savings from offshoring IT work to
countries like India saves a company 30-50 percent, and that consulting and
systems integration work is also becoming a staple in BPO contracts.
Alone, outsourcing might not represent a long-term threat to the systems
integration industry, but the recent popularity of Web services and SOA is
compounding the rate of decline. Platform-neutral and reusable, Tan reports
integration difficulties are reduced because of the open standards in Web
services, though she cautions that the technology — as well as SOA — is not applicable in all places.
Tan said the decline in the industry will force systems integrators to adapt or be overcome by the tepid demand. The next three to five years will see some continued demand for integrators though it will be the type of work that will put them out of business. She said companies will be looking for integrators to build up the Web services and SOA networks that will eventually supplant them.
“Systems integrators can capitalize on this short-term skill gap, and I think there will be a gap in that space for the next three to five years,” Tan said. “In the long term, I think they are going to continuously keep price pressures on all integration projects [but] they need to think of a strategy to replace integration revenue.”
Today’s systems integrators are already taking the hint. According to Tan, Accenture
has been aggressively pursuing BPO in order to minimize its reliance on systems integration revenues. Accenture, formerly called Arthur Anderson
Consulting, was recently
awarded a $10 billion contract with the U.S. Department of Homeland
Security to install a biometrics system in more than 400 U.S. air, land and
sea ports of entry.