The system integration (SI) industry is expanding with the adoption of AI, automation and data sharing, allowing companies to improve operational efficiency and competitiveness across diverse sectors. Mergers and acquisitions have surged as SI founders retire, while strategic and financial buyers acquire smaller firms to extend global reach and consolidate their services.
The industrial SI industry continues to benefit from favourable macroeconomic trends including near- and re-shoring, the drive toward automatisation to cope with a tight labour market and the need to deploy smart manufacturing to gain or maintain competitiveness. There are many challenges ahead as the landscape changes, particularly with the rise of artificial intelligence AI, and there are some possible clouds on the horizon.
A changing SI landscape
The industrial SI industry started with the commercialisation of the PLC in the early 1970s. The automotive industry was the first vertical to adopt it, and its main applications were machine and assembly line control. The opportunity to expand the use of the PLC to other verticals and applications created an opening for entrepreneurial engineers to start their companies.
This created the SI market, one that remains composed of smaller companies. According to the Spring 2023 CSIA-JP Morgan survey, 52% of the represented SI companies had annual revenues below $10 million and 19% had annual revenues under $2 million. A few large independent system integration companies have grown successfully past the $200 million mark.
More recently, mergers and acquisitions (M&As) have significantly increased. As an entire generation of SI company founders are moving into retirement, M&As; provide them with one of several exit strategy options. There is demand for SI companies from strategic buyers.
One example is provided by product companies that decide to extend their offers by delivering solutions. SIs provide an accelerated path to execution. Similarly, product or service companies may be asked by their multinational customers to provide extended regional or global support. Product and service companies (including SIs) may explore acquiring SIs to extend their global footprint or to extend the scope of their solutions.
The range of strategic buyers has increased. Deals in recent years have included acquisitions of SIs by automation equipment manufacturers, machine builders and by energy and infrastructure service providers.
Financial buyers, including private equity, have found their way into the SI market. Value is added by consolidation and operational efficiencies to make the larger company more appealing to big strategic buyers. Some of the larger SIs have been put together with private equity funding.
Expanding role for system integrators
Today, SIs cover any sector that benefits from industrial automation. It is not intuitive to associate amusement parks or car washes with automation, but it is automation that makes it all work together. The scope of work delivered by SIs continues to expand.
While control was and remains a key function of early industrial automation, today it represents only a portion of what SIs deliver. Data access, sharing and processing have become enablers of higher operational efficiency, safety and sustainability. SIs excel at accessing data at existing installations, which is often a patchwork of legacy, proprietary systems along with more modern and open ones.
Expanding solution ecosystems
As the scope of solutions continues to expand, so has the ecosystem of suppliers. Robotics provides one example. Robots have become more affordable and user friendly, making them more viable for many new applications and industries. More SIs are including robotics in their solutions.
Industrial automation has welcomed startups. Some of these companies provide key solutions at the data and data-security level. Digital twins of industrial plants provide many benefits for manufacturers. New tools help with the creation of these digital twins at brownfield installations. This includes conversion of paper documentation and creation of 3D models based on input gathered by cameras that sometimes ride on drones. AI is the ‘new, new thing’.
Additional business models
SI companies have traditionally been hired by their clients to deliver specific projects. Some SIs have expanded these engagements delivering value to their clients through an ongoing relationship. Sometimes they help manufacturers leverage the new data that they are getting access to by training their operators.
In other instances, SIs are providing services to set up and maintain the virtual twin of industrial plants. This demands new business models for the SIs and hiring of resources with backgrounds in data analytics, cybersecurity and, just as important, the ability to consult with clients.
Attracting worker talent
In recent years, manufacturers have struggled to recruit factory operators. SIs have faced a similar challenge recruiting talent. SI leadership understands that their companies lack the brand recognition of larger manufacturing or automation suppliers. What helps SIs in the ‘war for talent’ is their ability to provide their engineers with the opportunity to build solid work experience through assignments across various clients and industry verticals.
SIs have also understood that it is important to have a consistent and proactive approach to recruiting. Several SIs have developed relationships with professional schools and colleges to provide internships, co-op programs and hiring for full-time positions. Regular engagements help them build their brands as an employer of choice at these schools.
Industrial automation solutions have become more IT/software centric. This has forced SI companies to pursue another type of talent. This group has traditionally viewed ladder logic (traditional programming language for PLCs) and other programming approaches used by industrial automation as representing a step down for them. A shift toward IT/software centric by SIs will increase the odds to hire, retain and develop this highly sought-after talent pool.
Given the evolution of the solutions provided by SIs but also the recruiting challenges, some SIs have revisited their approaches for hiring technical staff.
From another monthly member survey, 24% of the participants shared that they have been hiring outside of traditional experience profiles. Another way to meet talent demand is to leverage offshore resources. In a monthly member survey, 25% of the respondents were doing this, and another 17% were contemplating doing this.
AI’s role in system integration
AI is poised to represent an inflection point, like the one provided by the internet or the electrification of the country more than a century ago. There are many things that need to be sorted out and it will take years for this. SIs may not want to wait until then as they risk being left behind. In general, SI engineers tend to have a natural averse reaction to things they perceive as being hype.
In a CSIA monthly member survey, 19% of the respondents selected “I do not have time for fads” to the question “Are you using AI for internal processes?” This represents a minority as in general SIs tend to be tech-curious, and most seem to be intrigued by AI or at different levels of engagement.
If there is anything we have learned from two large recent crises, 2020 COVID-19 and the 2007 -2008 global financial crisis, it is that nothing is certain. While the US economy is doing well, indicating a positive outlook for the SI industry, some significant major events are taking place around the world at the time of this writing that could still change things. These include the Ukraine-Russia war, the Israel-Hamas war in Gaza and the US presidential elections
The role of CSIA
The Control System Integrators Association (CSIA) was established in 1994 with the mission to help SIs build successful businesses and advance the impact system integrators have in industry. Through its best practices and benchmarking (BP) manual and its optional certification programme, it provides an objective framework to help SIs set up and improve their companies. Since its founding CSIA has witnessed significant changes in the SI landscape. Through its annual conference, webinars, podcasts and community of peers, it helps SIs stay engaged and up to date.
State of the SI industry
The state of the SI industry remains strong, and all drivers position this industry to remain strong in the years to come. Meanwhile nothing is certain and things can change very quickly. The SI landscape is changing and consolidation is in full swing.
SIs are becoming creative in their approach to hiring and this will become a real differentiator going forward. There may be a few clouds on the horizon, but SIs have traditionally weathered them well in the past and will do so again when the need crisis arises.Originally published in Control Engineering magazine.
Content courtesy of Control System Integrators Association, www.csia.com
© Technews Publishing (Pty) Ltd | All Rights Reserved
printer friendly version