When I worked for systems integration and engineering firms back in the dark ages (1991-2000), the delineation between markets was clear. Small systems were controlled by PLCs, and large systems were controlled by DCSs. In-between systems were fair game for both PLC and DCS vendors. PLC vendors treated integrators like royalty because they were their path to control of the middle market.
Both PLCs and DCSs were 100% proprietary, and open systems did not exist. DCSs were programmed by DCS vendors, and the DCS vendors did not pursue other systems integration work. PLCs were programmed by end users or by systems integrators. PLC vendors did very little systems integration work, preferring to rely on huge networks of systems integration companies.
The control systems marketplace has changed dramatically in the past two years. New controllers are neither PLC nor DCS, but a hybrid of both. Systems integration is now a hotly pursued business area for virtually all of the major control system vendors.
Examples abound. Invensys acquired APV, an engineering and systems integration firm. The company recently formed a new systems integration division called Invensys Production Management. Rockwell Automation's Global Manufacturing Solutions (GMS) division has a group called Manufacturing and Process Solutions that will "assesses operational requirements to provide control, automation, and related information system integration." Other control system vendors have similar initiatives.
This pursuit of integration services promises to have a huge impact on what is perhaps the largest group of these vendors' customers: independent systems integrators. Integrators were formerly favored clients of the control system majors, but they now find themselves squarely in the crosshairs of these much larger firms.
Why would vendors risk alienating some of their best customers? More revenue and higher margins are the answers. "Control systems are moving to PC (and other standard) platforms, and there are no more proprietary platforms with huge profit margins," says David Land, PE, a consultant instrument engineer with ConocoPhillips at the Ponca City (Okla.) Refinery. "Vendors must now make money on the software for a PC and the systems integration side."
Product margins are shrinking as open systems proliferate and differences among products narrow. Vendors see integration as a path to profitable growth and a way to distinguish themselves from competitors. "Vendors are turning to services to differentiate themselves from the crowded product space," according to Michael Sadler, manager of business development with Houston-based systems integrator Ready Technologies.
Control system majors rely on distributors, and these firms are facing the same margin pressures as their suppliers. Not surprisingly, distributors are also entering the integration business. "Vendors typically go after projects too large for us to pursue," says Ken Ludwig, PE, president of Mid America Consultants, Overland Park, Kan. "Distributors are more of a problem for me because they typically are going after the same size and types of projects that I am."
As is our wont, we talked to vendors, systems integrators, and end users for information. The input from vendors was as expected. They will "serve the needs of the clients while maintaining their excellent relationships with systems integrators." They will always apply the best hardware and software to each project, and they will not favor their products over other vendors. You get the idea.
The reality is quite different. There is a finite market for process control integration services. If vendors and distributors hope to grow in this market, they will have to do so by taking business away from systems integrators and/or purchasing existing systems integration firms. Integrators that choose to stay independent will be fair game for heated competition from vendors.
This is a topic that is near and dear to my heart due to a broadside administered by a "partner" to a systems integration firm I headed in 2000. We had found a $2 million project consisting of switchgear, controls, engineering, and electrical installation. We contacted one of the control system majors to get pricing, and we prepared and submitted our bid. We were livid when we learned we had lost the job to that very same vendor.
Their internal services group had found out about the project from us and had clandestinely contacted the customer and submitted a competing bid. We had no chance against them because they got a much better price on the switchgear and controls from their parent company. It may have not been the most rational response, but thereafter our firm was reluctant to use that vendor's products.
Examples of vendor and distributor poaching can be readily found and will probably increase. "A project we were about to bid using control components from a major vendor was kept by them and taken away from our regional salesman," says Bruce Darling, vice president of Thermal Economy, Cordova, Tenn. "I have experienced problems for years when I was developing boiler flame safeguard systems and competing with another major that did integration. It is a real sore spot for integrators."
Most respondents wanted to stay off the record with specific instances for fear of alienating vendors, but the underlying concerns are clear. "New competition drives prices lower. Existing service providers will be forced to lower their prices to stay in business," says one anonymous systems integrator. There is no doubt that increased competition and lower prices will make life much more difficult for independent integrators.
"There will be increased competition against companies that have many times the marketing and sales capabilities of any systems integrator," says Clay Schaeffer, PE, automation core team leader with CRB Consulting Engineers, Cary, N.C. "Some control systems companies can tap engineering resources from offices and rep companies from around the world to staff projects of any size. This is bad news for your local systems integrator."
If an integrator determines that a vendor or a distributor is a competitive threat, their relationship is bound to suffer harm. Of course, this creates a Catch-22 situation for integrators. One of the chief advantages of using an independent integrator is its vendor-neutral stance. But if an integrator won't use certain products because of competition, is it still vendor-neutral?
Integrators are definitely struggling with this question, and many of them gave conflicting answers. "Given the discretionary opportunity to suggest a product, we would lean toward vendors with whom we do not compete," says the president of an independent systems integration company.
This response may seem to indicate a lack of integrator independence, but the integrator also said, "In all cases, we will evaluate a product based on its merits and its suitability for use on a project. Being product-independent, we have that advantage." There is obviously some conflict in these statements, and this conflict is indicative of the dilemma faced by independent integrators when confronted with competition from vendors.
Integrators want to stay independent, but they are in business to make money. As open standards proliferate and product distinctions blur, expect to see more integrators recommending products based on their relationships with vendors. When independence clashes with survival, it is a good bet that survival will win out.
Some vendors are betting that vendor/integrator relationships will be more important than ever. These vendors are resolutely staying out of the integration business, even as they concede that growth and margins in services are more attractive than in products. "We recognize that the systems integration market is growing much faster than the overall automation market, but we don't want to compete with integrators who are our customers," says Gary Marchuk, a business development manager with AutomationDirect (www.automationdirect.com).
These comments are echoed by National Instruments. "If we were to get into the systems integration business, we would alienate many in our worldwide network of consultants, integrators, and channel partners," says Jack Barber, NI alliance program development manager. "By competing for services business, we would make it more difficult to work together sharing customer information, consulting on proposals, and developing applications. Ultimately, the customer would suffer."
Even if integrators lose some of their independence, they will still be more flexible than product vendors. Despite their protestations, it is difficult to envision a situation where the integration arm of a product vendor would suggest ripping out one of their underperforming products and replacing it with a competitor's. Only an independent integrator can make that kind of a tough call.
Another area where integrators claim advantage is process control expertise. It is not unusual for an employee at an engineering firm or at a large integrator to spend his or her entire career in one particular specialty area. "Our biggest asset is our domain knowledge of the water industry where we do the majority of our work," says Bill Phillips, PE, facility automation global technology leader for CH2M Hill. Would any of the control system majors refer to domain expertise in a single area as their single biggest asset?
What does this all mean for the end user? There will be more options to choose from for your next control systems project. If the project is big, the majors will be there to compete against the usual cast of integrators. If the project is small, distributors will try to grab their share of the pie. Competition will drive prices down, but it will also make the choice of the right integration partner more complex.
