A New Opportunity for IT Solutions Marketers: Outsourced Engineering Services
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According to recent research, the global spend on engineering services is expected to exceed $1 trillion by 2020, a growth of 50% from 2012. A fair amount of this will likely be outsourced offshore to places like India where 225 new R&D centers were set up in the last five years per industry reports. (ISG, 2014, Zinnov Consulting 2013)
The size and explosion of this segment shouldn’t come as a surprise as the market trends driving software and hardware product development are not new; many have been at play for some time in the IT space. Among them are the following:
“Retail” technology. There was a time when certain technologies where kept at an arms length from the average consumer, much like the Wizard of Oz operating behind a black curtain. Not any longer. Technology is in front of consumers so frequently today that its absence in a particular device or solution is not only immediately recognized but can negatively affect the brand being represented.
Ease of use or the “Apple-ization effect”. User ergonomics combined with technology for the masses has set new expectations with respect to ease of use and intuitive features. No industry segment or tech area is seemingly immune. Even areas such as industrial controls need to be accessed through portable devices via wireless connections.
Globalization. The collapse of the financial markets six years ago and the ensuing economic downturn provided multiple lessons regarding interconnected markets. For product developers, it merely reinforced the need to build globally ready products that could be easily localized to meet specific regional market characteristics. This has changed the focus from bespoke product development to a platform strategy that can be more easily adapted to become the first mover in a previously untapped market.
What Does it all Mean?
The emphasis on innovation and nimbleness that these trends point to require engineering operations to put more emphasis on those aspects of their value chain that are closest to the client. This is typically before, during, and after product release. It also requires being on top of technology trends that may not have been traditionally part of their ecosystem. At the heart of this is rethinking what their core competencies are versus what they should be. Everything from this definition, to associated business strategies, partnerships, and boundaries may need to be re-evaluated. For development groups and engineering organizations, ecosystem restructuring can be exciting and uncomfortable – representing business opportunities with respect to new channels and outlets.
Staying on top of all of this while also pushing a product or solution out the door can overwhelm most organizations. Outsourcing of product development to engineering services firms – while an unnatural act for development operations – can be a way to deliver innovative products or solutions to market cost effectively while still maintaining control of the development process itself. Firms specializing in engineering services, particularly those that offer services across multiple industry verticals, can provide specialized talent, access to technology, platforms and alternative sources of supply that may be out of reach for most development operations. However, talent alone or a deep bench is not enough to prompt a move.
Clients need to ensure that the engineering services firms they are considering have made – and are continuing to make – investments in the following key areas:
The first two bullet points are where the men get separated from the boys. Essentially, clients need to determine whether the outsourcing firm that they are evaluating for this work has made the same type of CAPEX investment they might otherwise make on their own if they were to “insource” this work. The more specialized the area in consideration – such as the creation of a device with multiple wireless transmitters or sensing points – the more sophisticated and customized the development environment needs to be. Traditional IT outsourcing firms with business models based on labor arbitrage may not be the best sources for these types of platforms or service offerings. While a deep bench is crucial in the support of an annuity business from existing clients in the IT space, it is not necessarily the most important facet to a successful engineering services practice.
Engineering services is less about bench volume and more about specialized domain expertise, platforms, and tools – which are all critical aspects of creating more customer-centric solutions. It’s also about R&D investments made both in related technologies as well as to those specific to a client’s domain of interest, whether it is in automotive infotainment or avionics.