In the world of systems integration, talking about the diminishing margin in hardware starts to feel like the movie “Groundhog Day.” We all know it is an issue, we all feel it in our bottom lines, but we struggle to bridge the shifting economics.
While we all have a blast talking about our problems, can we agree it is more fun — or at least more productive — to solve them? In order to solve our problems, we first must understand the root of them.
In the case of commercial integration, diminishing profitability is rooted in a few things. While most notably it is the diminishing margins on hardware, it is important not to ignore many CI’s have shifted from being product suppliers to service providers. In this shift, not all integrators have been created equal.
As margins have moved from product to project, it is upon the business leaders to solve the conundrum of how to make the intangible projects as dependable as the hardware that once drove big margins.
A great place to start is by looking at where margins get lost in a project by spending some time analyzing our respective organizations to determine if we can get those margins back.
Are you looking for your project profitability? Here are eight places to start.
1. The Wrong Suppliers: I won’t pull any punches here. Every company should take a close look at all vendor relationships, their programs with those vendors and what improvements can be made. This can drive two-to-four percent to the bottom line if it is made a focus from top to bottom.
2. Over Incentivizing: Sales are unquestionably the lifeblood of your company. But if your sales team is overcompensated, that immediately eats up potential profits. A good rule of thumb is a sales person should be paid (including benefits) no more than 25 percent of the gross margin they are creating. In my experience 20 percent is more manageable.
3. Design Efficiency: Customers don’t want drill bits, they want quarter-inch holes in the wall. If your design is heavy in equipment dollars then you probably have to reduce services and high margin dollars to meet the budget. Can you design more efficiently?