The manufacturing industry is in the throes of a perfect storm. The winds are coming from every direction: from the rapid convergence of technologies, ever-increasing customer preferences, mass customization, shifting global markets, the implementation of smart factories and smart supply chains, and the increasingly blurry line between products and services. Manufacturing practices and business models that have evolved over several decades are suddenly being challenged by models that take advantage of new technologies and whole new ways of doing business.
While the entire postindustrial world is experiencing disruptions like never before, leading technology giants like Google, Apple and Amazon are capitalizing on the disruption by claiming unassailable leadership in a world newly dominated by bits and bytes. Meanwhile, manufacturing organizations headquartered in developed nations are watching the graying of their engineer resource pool and struggling to cope with the shifts in the market.
This is a tell-tale moment. Forward-thinking enterprises are distinguishing themselves by leveraging engineering talent from around the world to develop technology-enabled products and services. Demand for such talent amid the globalization of engineering has grown steadily over the last two decades. In fact, engineering service providers (ESPs) and Global Engineering Centers (GEC)—the geographically dispersed operations that enable a company to provide engineering services internally for a sole industry vertical, or additional industry verticals for a conglomerate—are now growing at a faster rate than IT services.
The opportunity for GECs and ESPs to work together in this changing landscape is tremendous. However, most GEC-ESP partnerships are constrained by challenges.
- Lack of strategic partnerships with ESPs: GECs often engage ESPs tactically to augment resources rather than to serve as strategic partners. GECs believe this will help them ramp up projects more quickly, but when ESPs lack visibility into the GEC’s long-term plans, they cannot commit the necessary investments, and ramp-ups are ultimately slower.
- Underleveraged ESP innovation: One of the key value levers of engaging ESPs is to benefit from their cross-industry experience. For example, ESPs can apply their highly standardized work practices from the automotive industry to aerospace and heavy engineering. However, in most GEC engagements today, ESPs are deployed in less complex, “templatized” areas, which essentially wastes the engineers’ creative potential.
- Paranoia about intellectual property (IP): Despite the fact that most ESPs today have mature IP protection policies, many GECs restrict ESP resources to working only from their centers. Because they are cut off from their extended organization, the ESP team members are unable to leverage organizational wisdom, best practices and technical mentorship.
- Lack of clarity in value proposition: Many ESPs fail to articulate their value proposition or invest in GEC relationships by committing experienced resources, innovative solutions, training, tools, automation and Centers of Excellence. Over time, this has diluted the value they can deliver.
- Lack of intent in moving up the value chain: Many ESPs have failed to capitalize on the tremendous opportunities in today’s disruptive environment. An aversion to risk and reluctance to invest in complex solutions for their customers undersells the domain and technology strengths they have evolved over the decades.
- Out of sight, out of mind: Many ESP employees work out of GEC campuses and are disengaged from their parent organization. ESPs that develop mechanisms by which these employees can connect and cross-pollinate will enhance the value of all of their employees.
How can this situation be improved? GECs and ESPs that develop strategic and long-term relationships bring transformational advantages to manufacturing companies. These engineering partnerships enable organizations to not only weather the storm of conflicting market pressures, but they also introduce a powerful force multiplier in an organization’s ability to produce solutions that will lead the way.
ISG can help GECs assess, benchmark and transform their operations so their ESP relationships can generate greater value and improve performance.