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Engineering Services in the Age of the Industrial Internet

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by Dave Tienstra

While the development of hardware has always been a risky and treacherous process, a number of current marketplace factors are making it less so. Open source development models, the democratization of engineering and manufacturing, and new levels of innovation in service delivery and contracting have made the development of hardware more agile, adaptive, iterative and customer-focused. Add to this concepts like 3-D printing, adaptive manufacturing and the Internet of Things (IoT), and you have a manufacturing renaissance.

The core of this manufacturing renaissance hinges on three developments:

  1. IoT is becoming affordable and ubiquitous. The means to gather data is continually maturing as the proliferation of connectivity, computing power and bandwidth for communication allows nearly every device and a growing number of products to track themselves in real time and share data about their activity and environment in the ecosystem. The explosion of machine-generated data means the possibilities and the demand for analytics and storage solutions will only intensify.
  2. Connected hardware is evolving and enabling software and vice versa. Engineering the connectivity of the IoT depends first and foremost on the sensors themselves. As hardware becomes the new software, it will provide the platform for software and services. Hardware that adopts embedded software will evolve and compete while unconnected hardware will fade away.
  3. Engineering firms will import innovation into their service delivery. The terms of engagement between manufacturing enterprises and engineering services providers will change as the latter become more invested in the products they help their customers create. Service providers that share risks and development frameworks and invest in new products by themselves or with their customers will boost innovation and sharpen their commitment to timelines and cost.

The current engineering services outsourcing service delivery model is evolving and maturing to adapt to the age of the Industrial Internet. The latest National Association of Software and Services Companies (NASSCOM) report indicates that the revenue from current engineering services outsourcing is more than $17 billion. Service delivery frameworks for engineering services is fragmented, with 45 percent attributed to service providers and 55 percent to geographically dispersed in-house global engineering centers (GECs). India-based GECs are addressing various levels of complexities in product design, development and sustenance for the global markets. As IT and engineering continue to intersect, the IT needs of the product engineering teams will increase.

Service-Provider-Revenue-CAGR

The advent of IoT has created a new means for rapid differentiation for both enterprises and service providers. With only a few exceptions, niche providers focused on the core manufacturing industry are facing more challenges than the larger providers. Over the past three years, the growth of those providing engineering services has slowed, while the providers focused on software development and hi-tech have seen noticeable growth as the digital transformation of the industry, more efficient production and new business models create opportunity.

In an effort to rapidly differentiate, providers are more willing to selectively invest in the products of the future (i.e. new data, connectivity, automation and customer interfaces) to improve their digital maturity. In this way, they are becoming more integral and strategic to the enterprise. In return for the higher risk, these firms are looking for sustained business growth.

To redefine engineering services for the Industrial Internet, providers need to:

  1. Engage enterprise GECs more strategically and less tactically,
  2. Demonstrate commitment over the long term,
  3. Sharpen the definitions of the engagement frameworks to align with business outcomes.

Meanwhile, enterprises need to take advantage of this opportunity by:

  1. Bringing together IT and engineering to implement IoT across business processes,
  2. Addressing the needs of both IT and engineering stakeholders to enable accountability and growth,
  3. Demanding more innovation and better service delivery models from engineering services providers by redefining and/or reinventing GECs.

ISG’s engineering services practice is creating the marketplace where today’s manufacturing enterprises and engineering services outsourcing providers can come together and partner for faster growth in the age of the Industrial Internet. ISG helps enterprises assess their IoT readiness, rethink and mature their ESO contracts and develop service integration frameworks to optimize IT and engineering projects and improve return on investment. We also help service providers assess the maturity of their ESO offerings, redefine their approach to GECs and discern how to make the right bets for sustained innovation and growth. Contact me to discuss further.

About the author

Dave Tienstra works with enterprises across industries to increase margins by assisting them along their digital journey. He helps companies address their challenges and create competitive advantage through revised strategies, creative business models and technological innovation. Dave and his team use a collaborative process methodology to help clients achieve the optimal combination of cost efficiency, improved service delivery and innovation for their business requirements. Dave recently helped an aerospace and defense contractor design and execute a digital transformation to achieve its business objectives.