Integrator Update: System integrators are a good investment

Mark T. Hoske, Mark T. Hoske, Control Engineering

System integrators are a good investment

Control System Integrators Association (CSIA) provided benchmarking factors to improve operational and financial performance, as well as recruiting and retention for engineering personnel.

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Afour-year financial and operational benchmark study of 26 control system integrators says “the system integration business can be a good investment,” according to the report analysis – “Leading Pack vs. the Rest – A Data Driven Story.” The 16-page white paper from the Control System Integrators Association (CSIA), underwritten by Rockwell Automation, discusses success factors that separates 16 system integrators leading the pack from the rest. The report identifies no system integrators. “Benchmarking of key financial and operational indicators is key for continuous improvement of any business,” said Jose Rivera, CSIA chief executive officer. “CSIA has provided participating system integration members with valuable and realistic benchmarking data.” The analysis includes third-quarter 2016 through second-quarter 2020 data. Among participants, 20 submitted five years of data. Report benchmarks include earnings before interest, taxes, depreciation, and amortization (EBITDA), seen as an accurate measure of a firm’s operating profitability because it excludes non-operating factors, such as interest expenses, taxes and intangible assets. Calculations include utilization based on hours and dollars, revenue per total and billable

INSIGHTS employee, days cash on-hand, labor multiplier and days in backlog. CSIA adminisKEYWORDS: Control system integrators, operational ters the program, and a third party manages the data in a secure, confidential repository. benchmarks CSIA Benchmarking Committee provided Benchmarking of system analytics. integrator financial and operational indicators is key for continuous improvement. CSIA advice includes CSIA advice: Efficiency, utilization CSIA offered these report observations: operational efficiency, billing rates, utilization, cash flow. • Some companies have performed well Recruiting and retaining and shown consistent revenue growth. knowledgeable technology minded people is important. • Leading pack companies continue to CONSIDER THIS improve operational efficiency as comWhat benchmarks do you pany size increased. use to ensure metrics match your intent? • While EBITDA has decreased, it has ONLINE remained positive on average. A group www.controlsys.org/ of companies show revenue growth and leadingthepack good EBITDA consistently. •Non-labor revenue is a significant consideration in the leading pack’s performance.

• There is room to improve, especially on the utilization metric.

Specific advice includes sustaining labor rates billed to clients, including junior staff in projects to lower costs, and improving utilization. The report said, “The secret to the growth from labor revenue is not just in the rates but in the volume of labor revenue. The volume increase is reflected in the number of employees and their utilization. EBITDA is impacted by the ratio of billable to non-billable employees.”

More report advice is, “Smaller companies should emulate the larger companies and get their billable to non-billable ratio higher.” That includes focusing “on efficiency in management and administrative roles to reduce non-billable headcount.” Also, system integrators should “continue to drive non-labor revenue but keep an eye on the ratio to make sure budgeting and cash flow approaches are still correct.”

CSIA said it hopes the report will promote interesting conversations during planning seasons. Rivera added, “The analyzed period includes the first months of the COVID-19 pandemic. We expect changes to these numbers.”

CSIA: How to recruit, retain

Regarding recruiting and retaining new employees, the report says if system integrators (SIs) “can recruit fast to meet demand, they will be able to grow. A major challenge can be recruiting. Some SIs have taken the challenge seriously by developing their own recruitment machines, showing up yearafter-year at their selected schools, promoting their workplace environment and so on. Being competitive in salaries and benefits is critical.”

CSIA has a separate benchmarking program to serve recruiting and retaining skilled engineering and technology talent, called the CSIA Talent Retention Toolbox. ce

Edited by Mark T. Hoske, content manager, Control Engineering, CFE Media and Technology, mhoske@cfemedia.com, using info from CSIA, a CFE Media Content Partner.