Computer Integrated Systems Design

SIC 7373

Companies in this industry

Industry report:

Establishments in this industry are primarily engaged in developing or modifying computer software and packaging or bundling the software with purchased computer hardware--computers and computer peripheral equipment--to create and market an integrated system for a specific application. Establishments in this industry must provide each of the following services: the development or modification of the computer software; the marketing of purchased computer hardware; and involvement in all phases of systems development from design through installation. Establishments primarily engaged in selling computer hardware are classified in SIC 5045: Computers and Computer Peripheral Equipment and Software and SIC 5734: Computer and Computer Software Stores; those manufacturing computers and computer peripheral equipment are classified in SIC 3570: Computer and Office Equipment.

Industry Snapshot

Spurred by e-commerce development and other trends, systems integration revenues grew more than 13 percent a year during the late 1990s. According to the U.S. Census Bureau, revenues totaled $87.8 billion in 2000. However, in 2001 and 2002 systems integrators were victims of a weak economy and related reductions in corporate spending that affected virtually every sector of the information technology (IT) industry, especially service providers. Combined industry revenues totaled $78.6 billion in 2002, and overall technology spending fell an unprecedented fall of 2.3 percent.

Roughly 48 percent of the industry's revenues in 2000 were specifically attributable to integrated systems design services, while the remainder came from things like computer programming and systems management services. E-commerce integration, which involves linking Internet-based data and applications with corporate databases and other non-Internet applications, was one of the fastest-growing segments of the systems integration industry. Other growth drivers included corporate migration to large enterprise application environments like enterprise resource planning (ERP) and supply-chain management (SCM) systems, mergers and acquisitions that required marrying the separate data systems of the merged entity, and the ongoing need to share business data and applications across diverse platforms and software environments.

The industry continued to feel the effects of an economic downturn, with revenues falling further in 2004 to $70.9 billion. The economic recession that began in 2007 also negatively affected the industry.

In 2010, there were 22,829 establishments involved in computer integrated systems design, according to Dun & Bradstreet's (D&B) Industry Reports. Together these firms employed 275,869 workers and generated $53.6 billion in revenues. The sector of the industry that had the most establishments was computer integrated systems design, which had 10,901 firms and more than 45 percent of the overall market. Systems software development services represented 2,844 firms and accounted for about 10 percent of total industry sales. Systems integrated services numbered 2,542 firms with combined revenues totaling 19 percent of total sales. Another significant sector was computer systems analysis and design with 1,698 firms and 9 percent of revenues. Lastly, local area network (LAN) system firms numbered 1,175 and brought in just over 2 percent of total revenues. Several smaller sectors made up the rest of the market.

Based on D&B figures, most computer integrated systems design firms were small, with 75 percent employing fewer than 10 people. However, companies with more than 100 employees accounted for more than 50 percent of industry revenues.

Organization and Structure

Once a company identifies the specific design, operational, or management functions it wants its information system to perform--and the level of that performance--a systems integrator creates a system to meet those objectives. Systems integration services combine expertise in hardware, software, and communications to deliver complete information systems, including their design and development, the management of vendor contracts, the purchase of equipment and its technical integration, the implementation of the system, and any training necessary for the company to run its new or modified system.

The Information Technology Association of America, a trade group for the computer hardware and services industries, used the following analogy to explain systems integration: "In construction industry terms, the systems integrator would compare to the general contractor who interfaces with the electrician, the plumber, the mason, and any other trades that are necessary for the job, and who may undertake part of the task (for example, the role of architect). In systems integration, this general or 'prime' contractor responsibility may be assumed by an outside vendor or by the user, who may also wish to provide some of the core skills."

Integration services are, in practice, commonly offered as part of a broader package of services, many of which are not considered integration. These activities range from consulting to application development to system management. Indeed, few, if any, large systems integrators practice integration exclusively.

Companies wishing to establish or upgrade an information system turn to systems integrators for a variety of reasons. In an industry where knowledge about computers is not central to the business--such as health care, insurance, automobile manufacturing, and numerous others--engaging the services of a systems integrator gives companies access to cutting-edge skills and technologies. Having a single contract with a systems integrator, rather than separate contracts with numerous separate vendors, gives companies a fixed price and delivery date for an entire system and assurance that the system will meet their stated needs. In addition, the integrator protects the user from problems that are typical when engaging multiple vendors, including incompatible platforms, interfacing difficulties, and contract loopholes.

Like most computer service industries, systems integration has attracted many entrepreneurs. In the past, relatively little capital was needed, compared to the computer hardware industry. Agreements with equipment manufacturers for the products to be placed in the system are made on a current-period basis. Cash outlays increase as contracts increase; there is no need to manufacture anything in anticipation of growth. The majority of the investment is made in highly specialized staff with experience in several complex fields--systems and applications software, hardware, telecommunications products, and networks. In addition, experts are needed to oversee the entire process and work with customers. When selling a service, marketing also proves an important component in the structure of the business.

Systems integration companies generally grow geographically at first, simply providing their service to a wider range of customers. Because profits do not need to be invested in increased manufacturing or in research and development, systems integration companies generate a positive cash flow more easily than manufacturers. Cash flow makes acquisitions a common method of expansion, particularly into new service fields. Many systems integration companies have expanded into other computer or business services in order to avoid becoming overly dependent on one service, which might allow a competitor to undercut them or new products or regulations to jeopardize their business.

Like most computer service industries, systems integration is offered by many small entrepreneurial companies. The majority are privately owned. Still, larger integrators account for much of the industry's revenue. With the increased popularity of systems integration in the 1990s, a strong middle tier of companies with revenues between $50 and $100 million developed. A few companies offering systems integration generated $500 million to more than $1 billion in revenues.

Systems integration companies generally cater to either federal customers or commercial customers. Large systems integration firms maintain separate departments for the two types of customers. This division is common because soliciting contracts differs markedly between the two sectors, and the projects themselves are often fulfilled differently.

Federal regulations dictate the bidding process for government agencies. Government contracts are generally longer term, whereas commercial ones might be either long or short term and tend to be more dynamic. Government agencies frequently contract with systems integrators in order to avoid lengthy procurement cycles and still keep up with technological advances. A systems integrator may be hired to design and buy a whole system, so that no competitive bidding is required for each separate component of the network or system. The contract might also stipulate that the systems integrator will update the system as necessary to meet the agency's functional specifications. Revisions in federal procurement policies, however, made government contracts more like commercial ones in some respects.

Commercial companies contract with systems integrators because they see a competitive advantage. For instance, incorporating new technologies could improve their efficiency, save them money in the long run, or help them match their competitors.

Background and Development

Systems integration was traditionally dominated by original equipment manufacturers, which bought equipment, components, and software from various suppliers to produce a complete computer system that it then sold to end-users. In the early 1980s, the industry boomed, and computer service firms began to compete in this area. Industry revenues in 1980 were $2.2 billion; in one year they rose 36 percent to $2.9 billion.

The federal sector contributed significantly to the growing popularity of systems integration in the 1980s. Government agencies previously approached the development of their information systems in a technical manner, prescribing the individual technical components to be included in the vendor's bid. Because the federal procurement process was lengthy, an overly technical approach meant that technical specifications could become outdated even before the bidding process was over. To keep up with the rapidly changing computer industry, agencies began using functional specifications rather than technical ones and systems integrators to simplify the procurement process. Several large federal contracts in the early 1980s caught the commercial world's attention and helped popularize systems integration services. For example, EDS won a contract in 1982 to computerize administrative functions in 47 U.S. Army bases, generating revenues of $1 billion over 10 years. Around the same time, the Planning Research Corporation won a similar contract from the U.S. Patent Office.

The advances in mini- and microcomputers in the late 1980s opened up the market for systems integration. Smaller companies, for whom mainframe systems were not feasible, began establishing in-house computer systems and turned to systems integrators for assistance. In addition, larger companies continued to need help integrating new technologies.

Revenues in the systems integration industry grew at a healthy rate through the late 1980s and early 1990s, increasing an average of 7.5 percent per year. However, a survey conducted by the Information Technology Association of America of predominantly public systems integration companies showed that their average net profit margin fell from 6.1 percent in 1988 to an average net loss of 0.09 percent in 1992. According to the U.S. Department of Commerce, revenues rose 8.7 percent between 1993 and 1994 and continued to rise throughout the decade.

The steady rise in revenues despite a general economic downturn in the early 1990s was spurred by various factors. Industry downsizing helped value-added resellers, who once handled predominantly low-cost products from small companies. Many began handling sophisticated, expensive design automation products from manufacturers who reduced or eliminated their dedicated sales forces in an effort to cut costs. Approximately 1,800 companies provided systems integration services in the United States in 1993. Their revenues totaled an estimated $19.3 billion that year.

Networking services were a strong portion of the systems integration industry's growth in the early 1990s. Centralized mainframe computing, once the mainstay in the business world, was gradually supplemented and eventually replaced by distributed networks of minicomputers, workstations, and personal computers. The many options available and the constant introduction of new products discouraged companies from designing systems themselves. This trend toward open system architectures affected the systems integration industry throughout the 1990s. Rapid advances in telecommunications technology also contributed to the increasing reliance on systems integrators. The advantages of remote connectivity to geographically dispersed companies was only partly realized by the mid-1990s, creating strong demand for network integration services.

Services for computer-aided design (CAD), computer-aided manufacturing (CAM), and computer-aided engineering (CAE) were not growing as quickly as the systems integration services industry as a whole in the early 1990s, as the incorporation of these technologies slowed. Despite the already high installed base, the ever-increasing complexity of designs and the advantages of automation for the mechanical, architectural, engineering, construction, and mapping industries were expected to sustain the growth of CAD/CAM/CAE technology and services. Growth from 1992 to 1995 was languid, averaging 3 to 7 percent a year. By 1996 annual growth shot up to almost 16 percent, and in 1997 it approached a frenzied 30 percent.

The industry ended the 1990s at a healthy pace. Amid strong demand, in 1998 industry revenue approached $32 billion, according to the U.S. Census Bureau; this was up from just $20 billion in 1996 and about $13 billion in 1990.

While traditionally higher than government figures, private sector data indicated the industry's growth rate slowed in the early 2000s amid a weak economy and reduced IT spending in the corporate spending. Many companies were forced to table all but the most critical systems integration projects due to budgetary restrictions.

Competitive Environment.
The competitive landscape for integrators changed in the 2000s. Some smaller firms, for instance, had an advantage in the market for rapid e-commerce integration, where they were seen as more flexible, more responsive, possibly more knowledgeable, and better able to meet tight deadlines. Meanwhile, large integrators like EDS and IBM Global Services brought tremendous resources and bargaining power to the table and were able to win larger, more complex contracts through their name recognition and stable brand image even though they sometimes subcontracted the actual work to smaller, less well-known firms. The industry also saw a wave of mergers and acquisitions, as companies sought the right mix of competencies and market access to best meet new demand.

E-Commerce Integration.
Web and e-commerce integration continued to be a major focal point for the industry in the early 2000s. Brisk demand for these services first emerged in the mid- and late 1990s, as companies embraced the Internet as a sales and marketing channel. Typical e-commerce integration projects included linking a Web site and its supporting applications to existing corporate systems for storing product information, recording orders, managing transactions, and storing customer information. Because e-commerce initiatives were seen increasingly as vital to a company's competitive strategy, the market for e-commerce integration could be particularly demanding, requiring fast turnaround and extensive knowledge of different systems, both new and old.

Enterprise Application Integration.
Another important growth driver, especially in the large corporate market, was the widespread adoption of enterprise applications aimed at unifying data storage and management across broad swaths of corporate activities, from human resources and payroll to manufacturing and logistics. Many also had industry-specific components intended for, say, telecommunications providers or financial services. These applications, offered by vendors such as Oracle, PeopleSoft, and SAP in the 2000s, came with many preconfigured functions and tools but generally required customization and integration for specific users. Thus, systems integrators often sold, installed, and customized them for individual clients. In a corporate survey conducted by Accenture's Institute for Strategic Change and reported in the December 2, 2002, issue of Computerworld, 46 percent of respondents acknowledged the use of enterprise application integration (EAI) systems, and 9 percent indicated that they planned to use EAI software within two years.

Web Services.
Just as basic point-to-point integration, which focused on enabling communication between two specific systems, gave way to broader EAI frameworks that enabled communication among multiple applications, a simpler, more cost-effective means of systems integration known as Web services made major waves in the early 2000s. Simply put, Web services involve programming standards like Extensible Markup Language (XML) that allow communication between newer applications and legacy systems--within or between organizations--that were not designed to be co-operable.

Web services influenced the systems integration industry in several ways. One impact was negative, since companies could use Web services in-house to achieve integration that once required trained application integrators. This was good news for the corporate sector, however, given that for every $1 spent on software, companies spent anywhere from $3 to $20 on integration services, based on different estimates.

Given circumstances such as these, many felt that the role of system integrators was changing from a technical one to more of a consultative one, in which the integration of business processes was the primary focus. However, some industry players argued that in the early 2000s Web services still were no match for traditional EAI adaptations and that the demise of the system integrator was not yet in sight. Indeed, along with security, systems integration was a top priority for many organizations in 2002 and 2003.

In 2002, some EAI vendors made the switch from their own systems to those based on Web services, indicating that the two elements could coexist in harmony to some degree. One thing was certain--Web services were of great interest within the corporate world. According to the Accenture survey cited in Computerworld, 87 percent of respondents revealed that they planned to "experiment with Web services technology for possible application integration uses."

In the early 2000s the overall IT industry was in a period of stagnation brought on by weakened economic conditions. Industry revenues totaled $85.9 billion in 2001 before falling 6 percent to $80.7 billion in 2002. Overall, consumers spent nearly $256.2 billion on IT in 2004, compared to $205.4 billion spent by the financial and business services industries. The Information Technology Association of America (ITAA) reported government expenditures accounted for $168.9 billion for IT whereas global IT spending stood at an estimated $965 billion in 2004.

According to IDC Worldwide Black Book 2005, "worldwide IT spending in the first quarter of 2005 largely kept pace with expectations as businesses continued to increase their technology budgets and initiate new projects centered on security, regulatory compliance, infrastructure management, and business intelligence." However, the uptick in the industry was fairly short-lived, as the economy entered a recession in 2007 that some compared to the Great Depression of the 1930s.

Nevertheless, ITAA cited e-commerce as leading the overall industry, while application spending was projected to grow as well once the economy recovered. The major market drivers were in the government sector, banking and financial institutions, and manufacturing.

Current Conditions

As the second decade of the twenty-first century began, according to Computer Weekly, one of the most significant influences on just about every aspect of the computing world was the rising use of cloud computing. According to a November 2010 article, "This year [2010] brought development environments in the cloud, a better understanding of cloud economics, and an enthusiastic leap--marketing or otherwise--on the cloud bandwagon for every major supplier." This trend was expected to continue into the 2010s, as both large and small companies took advantage of the economic and environmental advantages of cloud computing.

One component of the movement toward cloud computing was SaaS (software as a service). According to Bob Moul in Computerworld, "SaaS technology is changing the way applications are designed, developed and delivered." For example, as stated in the May 2010 article, "Cloud-based integration platforms allow you to design, build, monitor, and manage integrations centrally (from the cloud) yet deploy just the runtime to where the integration needs to occur." The use of cloud computing was expected to continue to make many aspects of the computer systems design industry more efficient, simpler, and cost-effective.

Industry Leaders

One of the largest companies in the industry in 2010 was IBM Corp. That year, IBM's services unit accounted for more half of its annual revenues, which were just under $100 billion. Hewlett-Packard was another leader. The firm doubled its size when it purchased Electronic Data Systems Corp. in 2008, and revenues in 2010 reached $125 billion. Oracle and Computer Sciences Corp. were other significant players, registering 2010 sales of $26.8 billion and $16.1 billion, respectively.

Another important group of systems integrators included large consulting firms, many of which had vibrant computer services arms, which included integration services. An example is Accenture plc, the largest consulting firm in the world, whose annual revenues surpassed $23 billion. Other consulting companies that provided computer integrated systems design services included Perot Systems Corp., Analysts International Corp., CIBER (Consultants in Business, Engineering, and Research) Inc., and Keane International Inc., which was acquired by NTT Data in 2011.

Some of the largest accounting firms, including the "Big Four"--KPMG, Deloitte Touche Tohmatsu, Ernst & Young, and PricewaterhouseCoopers--also had a hand in the computer integrated systems design business. However, these firms were increasingly distancing their computer consulting functions from their accounting business for fear of conflicts of interest.

Workforce

The majority of jobs in the systems integration industry were white collar, and many required specialized knowledge. Functional area specialists had considerable expertise in a particular industry, such as financial services or health care, and used that knowledge to help the systems integration team tailor solutions to the specific needs of a company. Project managers coordinated entire projects, including planning, budgeting, training, the initial operation of new systems, and selecting products, services, and vendors. The transmission of information among people, computers, and locations was handled by communications specialists who analyzed and designed networks that carried data, voice, and video traffic.

Software specialists analyzed software requirements and designed software to meet client needs, created "blueprints" for systems integration projects, and were often involved in the development and implementation cycles. Hardware specialists designed optimal hardware configurations and managed the operation of hardware for systems in use. Supporting staff marketed and sold services, negotiated contracts, or worked in finance or accounting.

A great demand for systems integrators emerged in the late 1990s, especially those with a strong understanding of the Internet, intranet, and Web-based application design. The demand was for people with skills in Java programming, security and firewall experts, and people who could connect presentation-level interfaces with databases and legacy systems. The Bureau of Labor Statistics predicted that employment growth in this area would be faster than average through 2018, with the demand for computer systems analysts increasing 20 percent. In 2008, the average yearly salary for a computer systems designer was $78,680.

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