Index Insider: From Cost to Capability - Engineering Is Scaling Up

Hello. This is Stanton Jones with what’s important in the IT and business services industry this week. 

If someone forwarded you this briefing, consider subscribing here.

 

What You Need to Know

Enterprises are increasingly tapping into the IT and business services industry for software, embedded and mechanical engineering services. This increased demand is making the engineering services segment one of the fastest growing in the IT and business services market.

Data Watch

Background

As we discussed recently on the 3Q25 Index Call, annual contract value (ACV) for engineering managed services is up nearly 36% year to date. This is because enterprises across manufacturing, telecom, energy and transportation sectors need to do two things: 1) optimize costs in the face of high business uncertainty and 2) scale up their digital engineering capabilities to find new sources of growth and productivity.
The Details

• Global engineering ACV is up 36% YTD; EMEA is leading the way with 83% growth YTD.
• By type, software product engineering accounts for 45% of the ACV; embedded engineering for 19%, and the remainder 36% is split between mechanical, manufacturing and network.
• The number of awards is up 8% YTD. Larger awards in the $10 - $40M range are up 14% YTD.
• Large multinational providers like DXC, HCL, Infosys, TCS and Wipro account for nearly half of the engineering awards YTD and 44% of the ACV.

What’s Next

As enterprises across nearly every sector build customer-facing platforms and, as companies in asset-heavy industries like automotive, defense, telecommunications and healthcare increasingly add intelligence and data to their hardware, engineering is poised to be one of the key growth drivers for the IT and business services industry. This is why we decided to look at it as its own market segment this year. Engineering is growing double digits and is on pace to be a $3 billion market segment in 2025.
This market has traditionally been highly regionalized and heavily focused on a staff-augmentation model, but we see that changing. Multinational providers are using their experience in multi-year ITO and BPO managed services and transferring that knowledge and sales motion to their engineering segments, and, of course, they continue to use M&A to build scale. This is likely to continue into 2026, which means their share of awards and ACV are both likely to grow.
And, finally, as with nearly every area in the industry, AI – and specifically GenAI – is already starting to have a big impact in engineering services in areas like software modernization, manufacturing optimization and product innovation. Several of my colleagues wrote a joint paper with NASSCOM on this topic. I encourage you to download a copy here.