How integrators face the recession

With the recent economic downturn and the fact that the nation is now officially in a recession, systems integrators of all sizes are trying to determine what steps they're going to have to take to remain profitable when many of their traditional customers are financially hamstrung.

While many like to view the industry as "recession proof," others say that that notion just simply isn't true and that integrators need to prepare for tough times ahead, even if they're not immediately feeling the effects of the sour economy.

"The integration business tends to lag the general economy. So, if the general economy goes into a recession, we don't' feel it for a while because we're doing projects that extend out for several quarters," said Jim Coleman, president of Atlanta-based integrator Operational Security Systems. "Of course, the other side of that is when things start to get better; we don't see it for a while. We are late getting to a recession and we're late leaving it."

The result, said Coleman, is that eventually there will be fewer and fewer opportunities in the market for integrators and that more and more companies will be competing for the same jobs. Subsequently, profit margins will suffer, which will make it difficult for smaller integrators to stay afloat.

According to Coleman, companies with large embedded customer bases may well be able to sustain the hit by performing maintenance, additions and upgrades on existing accounts, but he indicated that other companies are going to have to do things to differentiate themselves from the competition such as providing superior customer service.

Another way that integrators are exploring as a means of making through the recession is to change their service offerings.

Bill Bozeman, President and CEO of PSA Security Network, which is an organization that includes over 200 systems integrators, said that many companies are now looking into managed service offerings to help them manage their cash flow.

"When you live from job to job, if the job's doing well, you're doing well; if you have one bad job, it can ruin what was otherwise a very good quarter or very good year," he said.

New technology, however, is paving the way for them to take advantage of this recurring revenue model. Bozeman added that a managed service offering is also beneficial to the end-user because they will no longer have to pay a large installation contract upfront because the integrator will spread the costs out on a monthly basis in system management fees. End-users would also have their equipment regularly upgraded and wouldn't be stuck with outdated technology.

The PSA president estimated that a managed service could save end-users as much as $200,000 a year in what it would cost them to hire a security guard to monitor their security system around-the-clock.

Still other integrators are venturing out into unchartered territory, looking for projects that are still within the realm of surveillance, but which may not be related to security.

A recent report from UK-based IMS Research predicts that the worldwide CCTV market will grow by over 10 percent next year, and that emerging surveillance markets in Eastern Europe, Russia, the Middle East, and Latin America will grow at a rate of over 20 percent. But not all of that CCTV growth is going to be specific to security.

More and more, Bozeman said that his organization has found that surveillance solutions are being used for such analytical purposes as enforcement of traffic laws, as well as analyzing customer behavior patterns and organizational effectiveness, and that integrators are finding work on these types of projects.

"Video surveillance is exploding and security video surveillance is an important part, but it is just a part. The issue that the physical security community has is that they're stuck in physical security mind mode," he said. "They're all about protection and security, so it's a stretch for them to think beyond that. But certainly there is a huge market in video surveillance that is not even related to security."

One potential opportunity for integrators in the non-traditional realm of surveillance projects could be the installation of high-temperature cameras.

Lenox, a Pennsylvania-based manufacturer of CCTV solutions various industries recently announced that they are seeking integrator partners to install furnace and boiler diagnostic camera systems commonly used in power plants and other large industrial facilities.

Paul Lang, vice president of Lenox, estimated that there is probably a $5 million to $10 million market in the installation of these types of camera systems.

Opportunities also abound for physical security integrators in the realm of Intelligent Transportation Systems or ITS. According to Jerry Molinaro, regional account manager for UK-based CCTV solutions manufacturer IndigoVision, as more municipalities are forced to cut their budgets in response to the economic crunch, more will turn to technology as a means to combat traffic problems, as well as crime.

"Really we're seeing a lot of expansion, not only locally, but globally in this opportunity because police departments just don't have the opportunity to be everywhere," he said .

Whereas ITS systems were originally launched to monitor traffic flow, Molinaro said that many cities have begun merging them into one large, networked surveillance system that can also be monitored by their police force. He added that the market for ITS is two-fold for integrators, one in installing the surveillance infrastructure and the other in setting up a network system, which can increase the price tag of a project by five fold.

"In a lot of the areas of the country this is just becoming a huge mushroom effect," the IndigoVision regional manager said. "It's piecemeal now, but in the next three to four to five years, it's going to be a very large opportunity (for integrators) because what we're seeing is the cities are installing five cameras, and then they have success with it and they have to go get another 20, and then when they get success with that they produce large projects."

According to Molinaro, IndigoVision is currently involved in the installation of 50 to 60 ITS systems, which he says is expected to grow over the next several years.

Coleman indicated, however, that it may be hard for many integrators to invest the time and resources that it would take to learn how to install a new type of camera system being that they are already going to be stressed with the bad economy.

"For some companies that might make sense, but in the early stages of the recession we're seeing people across the board pulling back on the reigns, not spending what they don't have to," he said. "Trying to get into a new field when everybody is pulling back I'm sure is a challenge. Anytime you branch off into something new there is a learning curve, but if you're in a desperation situation, I guess you do what you have to do."

As business does slow as it almost certainly will for most integrators, Coleman said that it is a good time to work on your company's fundamentals.

"During downturns like this, when there's more challenges in landing new projects, that's a time to emphasize fundamentals," Coleman said. "You could tolerate inefficiencies during good times. Now is a good time to go in and work on fundamentals -- good service, good installation practices and hustling on the sales side to differentiate yourself from the folks you're in competition with."

There are several keys to making it through a recession, according to Bozeman, the first of which is training, followed by having the right products and breaking from the traditional physical security mold and perhaps partnering with other network integrators. It's also a good idea, Bozeman said, to switch your focus away from areas such as retail and gaming, which will be hurt during a recession and moving towards vertical markets that are more recession resistant like transportation, healthcare and government.

"I can tell you this. If the physical security integrator doesn't (change their focus), other people will," he said. "Video surveillance was once strictly security and that was it; that's just no longer the case. As time goes on there's going to be more and more opportunities [in other surveillance markets]."

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