The state of the SI industry remains strong

System integrator insights

• 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 (M&As) have surged as SI founders retire, while strategic and financial buyers acquire smaller firms to extend global reach and consolidate their services.

The industrial system integration (SI) industry continues to benefit from favorable macroeconomic trends including near- and re-shoring, drive toward automatization to cope with a tight labor 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 commercialization of the programmable logic controller (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. There are a few large independent system integration companies that 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 are 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.

Jose Rivera. Courtesy: CSIA

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. Artificial intelligence (AI) is the “new, new thing” and it deserves its own section at the end.

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. 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 larger recent crises (2020 COVID-19 and the 2007 -2008 Global Financial Crisis), is nothing is certain. While the U.S. economy is doing fine, 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 change things:

• Ukraine-Russia war: Russia invaded Ukraine at the end of February 2022. While it is hard to believe that this conflict is still on-going, there is always the opportunity for further escalation.
• Israel-Hamas war in Gaza: This conflict started in October 2023. Also hard to believe the number of casualties on both sides, the fact that hostages are still being held captive, the massive destruction of Gaza, and the long road to reconstruction and a lasting peaceful coexistence. This is another conflict with the potential for further escalation.
• U.S. Presidential elections: Every election is consequential, and every U.S. citizen needs to understand their vote counts. A new presidential term inevitably brings uncertainty for a while.

The role of CSIA

The Control System Integrators Association (CSIA) was established in 1994 with the mission to help system integrators (SIs) build successful businesses and advance the impact system integrators have in industry. Through the best practices and benchmarking (BP) manual and its optional certification program, 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. Nothing is certain and things can change very quickly (e.g., COVID-19). 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.

Jose M. Rivera is the CEO of the Control System Integrators Association (CSIA).

Original content can be found at Control Engineering.

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