Computer Integrated Systems Design - Background and Development

Background and Development

Systems integration was traditionally dominated by original equipment manufacturers, which bought equipment, components, and software from various suppliers to produce a complete computer system that it then sold to end-users. In the early 1980s, the industry boomed, and computer service firms began to compete in this area. Industry revenues in 1980 were $2.2 billion; in one year they rose 36 percent to $2.9 billion.

The federal sector contributed significantly to the growing popularity of systems integration in the 1980s. Government agencies previously approached the development of their information systems in a technical manner, prescribing the individual technical components to be included in the vendor's bid. Because the federal procurement process was lengthy, an overly technical approach meant that technical specifications could become outdated even before the bidding process was over. To keep up with the rapidly changing computer industry, agencies began using functional specifications rather than technical ones, and systems integrators to simplify the procurement process. Several large federal contracts in the early 1980s caught the commercial world's attention and helped popularize systems integration services. For example, EDS won a contract in 1982 to computerize administrative functions in 47 U.S. Army bases, generating revenues of $1 billion over 10 years. Around the same time, the Planning Research Corporation won a similar contract from the U.S. Patent Office.

Revenues in the systems integration industry grew at a healthy rate through the late 1980s and early 1990s, averaging 7.5 percent per year. However, a survey conducted by the Information Technology Association of America of predominantly public systems integration companies showed that their average net profit margin fell from 6.1 percent in 1988 to an average net loss of 0.09 percent in 1992. According to the U.S. Department of Commerce, revenues rose 8.7 percent between 1993 and 1994, and were expected to continue to rise between 1994 and 1997 at an annual rate of 8.1 percent.

The steady rise in revenues despite a general economic downturn in the early 1990s was spurred by various factors. Industry downsizing helped value-added resellers, who once handled predominantly low-cost products from small companies. Many began handling sophisticated, expensive design automation products from manufacturers who reduced or eliminated their dedicated sales forces in an effort to cut costs. Approximately 1,800 companies provided systems integration services in the United States in 1993. Their revenues totaled an estimated $19.3 billion that year and were expected to reach $20.9 billion in 1994.

Networking services were a strong portion of the systems integration industry's growth in the early 1990s. Centralized mainframe computing, once the mainstay in the business world, was gradually supplemented, sometimes even replaced, by distributed networks of minicomputers, workstations, and personal computers. The many options available and the constant introduction of new products discouraged companies from designing systems themselves. Analysts expected this trend toward open system architectures to affect the systems integration industry through the 1990s. Rapid advances in telecommunications technology also contributed to the increasing reliance on systems integrators. The advantages of remote connectivity to geographically dispersed companies was only partly realized by the mid-1990s, creating strong demand for network integration services.

Services for computer-aided design (CAD), computer-aided manufacturing (CAM), and computer-aided engineering (CAE) were not growing as quickly as the systems integration services industry as a whole in the early 1990s, as the incorporation of these technologies slowed. Despite the already high installed base, the ever-increasing complexity of designs and the advantages of automation for the mechanical, architectural, engineering, construction, and mapping industries was expected to sustain the growth of CAD/CAM/CAE technology and services. Growth from 1992 to 1995 was languid, averaging 3 to 7 percent a year. By 1996 annual growth shot up to almost 16 percent, and in 1997 it approached a frenzied 30 percent.

The industry ended the 1990s at a healthy pace. Amid strong demand, in 1998 industry revenue approached $32 billion, according to the U.S. Census Bureau; this was up from just $20 billion as of 1996 and about $13 billion in 1990.