Tag: Engineering Services

Reimagining Global Engineering Services – a Hierarchy of Needs | Sherpas in Blue Shirts

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:

Hierarchy of Digital Engineering Services Demand

Global Sourcing of Digital Engineering Services

  1. Crushing spend: Arguably, there’s nothing new about leveraging a global sourcing model to reduce spend. However, the optimization levers go well beyond arbitrage, extending into the realms of analytics, the IoT, and automation. We are beginning to see enterprises contracting not just for cost savings, but for specific details around how cost savings are being achieved (e.g., success of automation projects, and ongoing commitment for automation.) Digitalization can often achieve breakthrough spend reduction outcomes (e.g., maintenance of oil refineries leveraging IoT technologies), well beyond the traditional arbitrage levers.
  2. Transforming experience in plants or mines: The experience is typically optimized across a bunch of typical considerations such as safety and accessibility, speed, and convenience. For instance, using design thinking principles in plant assembly line design, IoT implementation in mines for health and safety related use cases and medical device companies are using digitally reimagined techniques to create improved patient care outcomes.
  3. Accelerating product innovation: Sophisticated enterprises realize they can’t do it well enough or fast enough unless they embrace a broader innovation ecosystem. Globalization is a major driver of demand, as is the need to accelerate and contextualize cross-industry innovation. For instance, automotive OEMs realize they need to embrace a broader ecosystem of talent and technology providers to create differentiated infotainment offerings.</>li
  4. Disrupting the business model: Business model disruption comes about as a natural progression through the first three levels of the hierarchy, coupled with a disruptive idea. For instance, automotive companies the world over are waking up to the potential of a new business model that is built on asset sharing as opposed to asset ownership. Utility companies are creating parallel energy sharing models using blockchain. Medical diagnostic companies are reimagining their business model by experimenting to service-led, as-a-service models.

Everest Group recommends enterprises follow a “3E” approach to shaping their engineering services global sourcing strategy:

  • Evaluate the current state of your digital engineering journey against the strategic objectives of efficiency, experience, innovation, or disruption. The way you measure success in the short term should derive from where you are, and your longer-term strategy should stem from a broader industry vision.
  • Evolve the ER&D sourcing model in line with your aspirations. If you are trying to drive strategic business impact at the higher reaches of digital engineering maturity, you should be able to use objective data to benchmark the impact on business processes. For instance, your ER&D sourcing models should be linked with improvements in supply chain metrics, experience, accelerated time to market, or an increase in digital-led revenues.
  • Enrich the sources of engineering and R&D innovation by engaging with service providers, start-ups, academia, designers, social scientists, etc. Such an ecosystem should transcend the traditional enterprise-partner model, and requires a central orchestration function for scalability.

Visit our engineering services page for more insights on engineering services global sourcing strategies.

New Paradigm in ER&D Services: Convergence of Engineering and Technology – Part 2 | Sherpas in Blue Shirts

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.

Engineering Services and Technology ER&D

  1. Access talent with hybrid (technology + domain + design) skills: Service providers and enterprises are increasingly looking at hiring people not just with the right domain knowledge, but also with cross-functional expertise. There is heightened demand for engineers with niche technology skills, such as IoT and artificial intelligence. For instance, Altran, one of the world’s largest engineering service providers by revenue, has an innovative way of recruiting talent. It filters talent through case studies based on its own real-time projects, such as “connected car” and Solar Impulse . This enables it to select candidates who have both the right skill sets and an innovative mindset, which has become critical for people in the industry.
  2. Capitalize on data to drive business value: New technologies and social media have led to a gush in the amount of consumer data that can be tracked and mined to deliver a better customer experience. Players in the engineering services space are realizing the value of customer data, and taking steps to build infrastructure for analyzing it. For example, ALTEN Calsoft Labs, a global engineering service provider, recently announced that it will acquire ASM Technologies Ltd’s software business division to augment its cloud, analytics and mobility capabilities.
  3. Reimagine product development: With shrinking product lifecycles and ever-changing customer demands, the focus is on providing end-to-end solutions rather than just point solutions. Service providers are partnering with clients to deliver solutions in an as-a-service model. Customer expectations are putting pressures on product lifecycles, and enterprises are trying to innovate and create newer and smarter products at warp speed.
  4. Move towards co-innovation model: The shift in technology complexity and consumer demand for a “connected” ecosystem is increasing collaboration between enterprises and providers for innovation and new product development. For example, Jaguar Land Rover is partnering with Altran to develop and market a unique software platform for vehicle internet connectivity, driver assistance systems, autonomous driving, and analytics. The partnership is aimed at delivering increased customer value by combining Jaguar’s automotive experience and Altran’s expertise in providing solutions for the automotive sector.
  5. Drive efficiencies in design to deliver cost savings: New technologies and methodologies in software development and testing are transforming the product development landscape for enterprises and they are increasingly adopting automation tools to accelerate time-to-market for products. For example, Wipro has a defined test automation framework (Wipro Endur Test Automation Framework) that can help clients reduce overall TCO of test automation by as much as 45 percent.

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.”

New Paradigm in ER&D Services: Convergence of Engineering and Technology – Part 1 | Sherpas in Blue Shirts

It is interesting times for the engineering services and R&D (ER&D) market. Industry demand for engineering services coupled with technology innovations is transforming the market landscape, and leading to the emergence of new business models – in particular, the convergence of engineering services with new technologies, such as digital, IoT, and analytics for product development.

The proliferation of digital technologies is compelling enterprises to relook at their product development strategy, and integrate new technologies with products to deliver an enhanced customer-centric experience. Service providers in the ER&D industry are looking to expand their engineering service offerings by tapping into new technologies that can help them differentiate their position in the market and deliver increased value to their clients.

The convergence trend is manifesting itself in many ways in the industry, and fundamentally transforming the normal course of business for both enterprises and service providers:

  • Evolving consumer needs, coupled with the explosion of digital devices and technologies (e.g., connected vehicles, chatbots, and machine learning based platforms) are dramatically changing the demand landscape in the ER&D services industry. Given that the number of connected or smart devices is expected to grow from 22 billion today to 50 billion by 2020, it’s clear that enterprises must now provide a “connected ecosystem” experience for their customers across devices and platforms.
  • The US$75-80 billion ER&D global services industry is expected to grow at a rapid pace (14-16 percent YOY) and reach US$145-155 billion by 2020. This growth is being driven by evolving customer demands, the need to integrate new technologies with products, shortening product lifecycles, and the resulting cost and margin pressures for enterprises.
  • Facing margin pressures for IT services, service providers such as HCL, Infosys, and TCS are betting big on the fast growing ER&D services segment. For example, Infosys recently opened delivery centers in Croatia and Russia to provide engineering services to its automotive, heavy manufacturing, and aerospace clients. The ER&D services industry is expected to drive the next wave of growth for these players:
    • In the last couple of years, the engineering services segment has grown faster than IT services. Estimates from NASSCOM are that engineering services exports grew by 12.6 percent in India during FY 2016, whereas IT services exports grew by 10.3 percent
    • Infosys’ YOY FY 2016 revenue growth for its engineering services practice (16 percent) was more than the company’s total revenue growth (9 percent)
  • With enterprises’ shift in demand, service providers are looking at capturing a larger share of ER&D outsourcing market pie by investing in the segment and acquiring new capabilities. For example:
    • HCL Technologies recently acquired Geometric to strengthen its engineering services and IoT capabilities
    • Luxoft recently acquired Pelagicore AB, a leader in open source software services for human machine interface (HMI) development. The acquisition is expected to help the service provider bolster their automotive services offerings with next-level technology capabilities.

Time-to-market pressure for product development is making enterprises and service providers look at avenues to deliver enhanced value to their customers. Make sure to visit our blog page later this week to read our follow-up post on the different ways they’re keeping up with this trend.

Dominating themes at the #NASSCOM Design and Engineering Summit 2016 | Sherpas in Blue Shirts

Digital technologies are fundamentally changing the demand ethos of the US$75 billion Engineering and Research and Development (ER&D) global sourcing market, which is expected to grow at a CAGR of more than 18 percent over the next five years. With rapidly evolving consumer needs, an increase in global regulatory pressures, the rise of the shared economy, increasingly complex security needs, and technology’s shift from enabler to disruptor, following are the major themes I expect to dominate the NASSCOM Design and Engineering Summit 2016, which is being held in Bangalore on October 5 and 6:

    1. The connected digital ecosystems: The proliferation of smart devices and radical improvement in connectivity infrastructure are shaping the evolving digital ecosystem of everything. Orchestrating this connected digital ecosystem and creating products that tap into it are creating a new demand portfolio of ER&D services across industries. Think rapid consumerization in the healthcare industry with increasing use of connected smart medical devices, the connected and autonomous vehicles defining the future of mobility in the shared economy, or the convergence of machine-to-machine (M2M) technologies and advanced analytics driving the industrial 4.0 revolution.
    2. Designing for the future: Enterprises must understand the needs of tomorrow’s customers, and will need to push the boundaries of innovation and design thinking to engineer products that are at the intersection of leveraging cutting edge technologies and re-imagining processes and business models.
    3. Smart, smarter, and smartest: The rise of cognitive computing technologies has pushed the boundaries of process and task automation to create smart products. Research advances in the field of Artificial Intelligence (AI), machine learning, and edge computing will drive development of products that dramatically improve the user experience, and provide convenience beyond expectations for consumers and employees alike. This creates demand for a talent model with hybrid skills of product engineering and design, domain knowledge, and ability to leverage cognitive technologies.
    4. Making sense of data: Enterprises are collecting a lot of data through a multitude of external and internal data sources, and are looking at how to enhance product design and engineering processes, reduce costs, improve quality, and meet evolving user expectations. Enterprises in the retail, defense, media, and financial services industries have been at the forefront of using data and analytics to answer these questions. Demand from these industries is driven from adoption of further sophisticated analytics initiatives that helps deliver competitive advantage. Industries including manufacturing, energy, telecoms, and healthcare and life sciences are rapidly adopting big data and analytics technologies.
    5. Real use cases beyond the cool stuff of AR/VR: Augmented reality and virtual reality technologies have great potential in areas such as remote monitoring and predictive maintenance, training, and simulated testing environments. Expect to hear more use cases for AR and VR technologies.
    6. Software-defined everything: “Software eats everything” across all industries – software-defined infrastructure, software-defined manufacturing, software-defined networking, software-defined datacenters, and so on. The delivery of software product as-a-service, the ability to remotely support and maintain customer premise equipment, and the increasing demand for configurable over customized software products are creating a new demand paradigm for ER&D services in the software products industry.
    7. Time-to-market: Speed is the new currency in the product engineering world. Sourcing has enabled enterprises not just to reduce costs but to drive agility and flexibility to respond to market volatility and constantly changing consumer demands. As technology becomes core to all activities, concepts such as agile and DevOps are becoming relevant across the ER&D services industry value chain.
    8. Standards, security, and compliance: Security is among three priorities for all C-suite executives globally. In the age of connected digital ecosystems, building security into product design is becoming an absolute necessity. Compliance but is a critical component of the demand driver for the ER&D services industry.

I look forward to interesting discussions on these and other topics with the engineering services enterprises and vendors during the #NASSCOM Design and Engineering Summit. If you’re there in person, feel free to contact me or my colleagues H Karthik and Bhawesh Tiwari.

Click here to read about Everest Group’s latest research on the engineering services global talent spot, and here, here, and here to check out detailed insights from this research.

NASSCOM Design and Engineering Summit 2016

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