Outsourcing product quality management – the risk/return conundrum
Outsourcing product quality management – the risk/return conundrum
Engineering Services providers are enabling enterprises to:
Localize and gain access to new markets
Access expertise and mitigate risk through specialists
Adhere to complex regulatory policies and security standards
Improve efficiency and quality
Overcome internal capacity constraints
Develop quality management as a strategic process
The ES global sourcing market is expected to see accelerated growth as the result of a number of new demand paradigms
Testing as a service offers a variety of benefits, including pay-per-use, which saves on investment in expensive tools & infrastructure and experts, and access to specialized skill sets to deal with complex problems
Digital capabilities continue to change the character of quality assurance and testing activities
My most recent blog focused on why quality management (QM) is a critical contributor to enterprises’ ability to take great products to market. Now, let’s turn our attention to who can – indeed, perhaps should – perform product QM work for organizations.
Viewing QM activities as a core competency, enterprises have traditionally conducted them in-house. In some cases, they’ve engaged their global in-house centers (GICs) to handle some aspects of QM in order to reap the benefits of factors such as talent access and cost arbitrage, while still retaining control over issues such as IP protection and close integration with the parent entity, which is key for product design and development.
However, the advent of innovative engagement models (e.g., outcome-based pricing, collaborative IP, etc.), the pervasiveness of digital technologies, and advancements in data and IP security measures are instilling confidence among enterprises to partner with third-party service providers for their product QM activities. Recent investments by service providers in building IP and enhancing their capabilities in this space – spurred in part by slowing growth in more traditional ITO and BPO areas – is strengthening their case with enterprises. Indeed, Everest Group research shows that global sourcing in the QM space will grow at an impressive 16 to 18 percent through 2020 – higher than the growth expected in the global sourcing space for overall engineering services.
Following are some of the ways in which third-party service providers can deliver product QM value to clients.
Of course, outsourcing product QM does come with risks and challenges. Factors that enterprises should consider when weighing a product QM outsourcing decision include:
When evaluating a particular outsourcing service provider for product QM work, enterprises should evaluate factors including talent availability, infrastructure availability, delivery capabilities, ability to scale up/down, innovation-focus, expertise in digital themes, inclination towards outcome-based business models, and client satisfaction.
Everest Group has conducted deep-dive research on the global sourcing landscape in the product engineering space, covering all the activities involved in the validation, verification, and testing of both hardware and software across the product lifecycle. We have studied twenty-three of the leading engineering service providers in the QM services space, and have analyzed them on parameters including capabilities, scale and scope of services, and IP/investments. Following is a sneak peek into our relative analysis of these players based on their engineering services play, revenue and revenue growth, and coverage of QM services.
Please click here to read a preview of our report, “Identifying the Right Partners for Quality Management in the Engineering Services Industry – Service Provider Landscape.”
What do products like the Samsung Galaxy Note 7, the Toyota Corolla/Yaris (in 2016), and the Fitbit Force (in 2016) have in common? All were potentially great products that cost their companies dearly – in both image and money – due to faulty performance resulting from poor quality management.
Enterprises have come to realize the significance of quality as an indispensable ingredient for creating impactful products. They not only view product quality management as a cost-saving measure (preventing the costs of rework, wastage, regulatory breaches, warranties, product recalls, etc.) but also as a way of accelerating product launches and creating a differentiating value proposition in increasingly commoditizing markets. Given the vast intermediation of product supply chains among vendors, technology partners, assembly partners, and logistic partners in today’s operating environment, the need for quality management activities is even more pronounced as products flow from one stakeholder to another.
Yet, despite acknowledging the positive impact of product quality management, many enterprises grapple with fully integrating, and regularly upgrading, their quality management initiatives across business activities. Some reasons for this are:
To counter these issues, enterprise stakeholders need to commit to quality management as seriously as their other business mandates (innovation, margins, etc.) They should also be open to the idea of partnering with external entities and service providers in areas where their internal capabilities fall short on yielding the desired levels of quality standards.
Digital themes like mobility, IoT, and data analytics are enabling enterprises to build new capabilities in their products and enhance the customer experience. The advent of IoT and automation has also led to a transformation of production processes, wherein enterprises can build their products more smartly and with shorter turnaround times.
However, many enterprises face initial failures in bringing robust digital products to market because they tend to focus only on developing digital products, completely ignoring the need to adapt the underlying processes to ensure the reliability and quality of these products. This is the same as having a Euro Standard VII vehicle engine ready for market, but not having focused one bit on developing compatible fuels. We all can guess how successful (at least in the near term) these engines will be.
Digitization has thus ushered in a new era of product quality management, where capabilities need to be enhanced for testing more sophisticated products while factoring in for data management and security. Further, advancement and automation of production processes is creating the need for redefining metrics and KPIs for quality management.
So, what immediate steps should enterprises take to develop digital-ready and digitally-enabled quality management activities? They include:
Everest Group has conducted deep-dive research on quality management services in the product engineering space, covering all activities that are involved in the validation, verification, and testing of products (hardware or software) across the product lifecycle. The research covers the market landscape of quality management services, and delves into the role of digital technology themes in reshaping the way enterprises look at their product quality management efforts. Read a preview of our report, “In Pursuit of Product Excellence: Quality Management in the Engineering Services Industry.”
The engineering services industry is one of the most interesting segments in the global services landscape today.
Compared to IT and business process services, the global engineering services market is much smaller, at approximately US$ 90 billion. It is also growing much faster, at approximately 15 percent per year.
The bulk of the growth is going to be driven by a need to reimagine global sourcing of engineering services, in line with the progression of enterprise digitalization strategies.
Everest Group believes there are four distinct objectives behind digital engineering strategies:
Everest Group recommends enterprises follow a “3E” approach to shaping their engineering services global sourcing strategy:
Visit our engineering services page for more insights on engineering services global sourcing strategies.
GICs offerings are slowly shifting
In New Paradigm in ER&D Services: Convergence of Engineering and Technology – Part 1, we talked about the emerging trend of convergence of engineering services and new technologies, and why it is important for enterprises to deliver an enhanced customer experience. Now, let’s turn our attention to the steps and measures enterprises and service providers are taking to tap into the trend and enhance their value proposition.
Implications for the industry
So what does this all mean for the ER&D services industry outlook, and for players in the domain? As it becomes increasingly crucial for enterprises and service providers to gain new capabilities in engineering and technology, there will be increased merger, acquisition, and partnership activity. Enterprises will look at partnering with niche technology firms or innovative startups for new product development. Service providers will pursue targeted acquisitions, and try to strengthen their value proposition for clients by increasing investment and focus on the segment. It will be exciting to see what happens in this space in the next 5-ten years.
For more insights and information on the ER&D services industry, please refer to our latest report, “The Evolving Demand Paradigm in the Engineering and Research and Development (ER&D) Services Industry.”