With increasing competition, systems integrators (SIs) and solution providers are seeing their returns on services business plummeting sharply. Till recently, maintenance, integration and implementation business were the bright spots in every SI’s overall revenues.

Today, these have a taken a beating due to a completely disorganized pricing structure. Also, since solution providers have no formal understanding of the business, net returns have plunged to negative levels.

SIs across the country face the same situation. On one hand, they are reeling under their own infrastructure costs and on the other, have to handle poor returns. This scenario is compelling many SIs and solution providers to look at alternate businesses.

FOLLOW THE THREE-STEP PROCESS
The foremost thought in most partners’ minds is to stay in the reselling or services business, while improving their margins. A long-term positive approach and planning on behalf of the National Association of Channels of Information Technology (NACIT) and its member associations will play a major role in making this hope come true. This can be done if these associations embark on the three-pronged strategy mentioned below.

EDUCATE
To start with, SIs should be given a basic training on proper management of their business economics. It is generally seen that most partners follow arbitrary pricing and services rate structures without really understanding their own cost structures.

They must be educated about establishing the right infrastructure, which will help them run their services businesses successfully. Also, knowledge should be imparted on methods for understanding absolute costing, transaction costs and calculating overall costs for services. SIs should know the exact potential of services business from their existing customers.

Educating SIs on the above issues might turn out to be the biggest service that national and local trade associations can provide to partners.

TRAIN
The SI community includes a lot of companies who don’t even possess sound technical expertise to install and support the products they sell. This obviously leads to problems for customers and the seller as well.

While partners cannot step back to learn their basics, focused training sessions can do wonders for these SIs. NACIT and local trade associations should invite vendors and OEMs to conduct technical training programs and seminars for their products, across major locations.

RATIONALIZE BUSINESS PRACTICES
As in any trade, NACIT and its affiliated trade associations should establish guidelines on product and services quality as well as pricing and delivery standards. Today, there are no guidelines or standards that SIs follow. Service rate standardization has been tried by many associations, but not pursued tenaciously.

When SIs understand their own business economics, they will find ways and means to be more cost-effective and competitive. They will also have greater control on their company’s fiscal health.

A WIN-WIN SITUATION
The IT industry is largely service-driven and will continue to be more so in the future. It becomes imperative that the service aspect of business is looked at seriously by NACIT. This is very important from the end-customer’s point of view as he will get better products and a higher quality of services.

Associations will require larger funds, dedicated manpower and committed resources to help SIs with better business prospects. They must try to tackle grass-roots problems along with doing more noticeable functions like lobbying with state and national governments; negotiating with principals and MNCs; and undertaking vendor boycotts.

A strong, motivated and fiscally sound channel community will bring in all-round growth and progress. It will help principals, MNCs, vendors, distributors and channel players as well, with each one having their share of margins.

Chetan Shah is the MD of Xpress Computers

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