Today, leading organizations around the globe are making major commitments to the process of business transformation. The goal of the reshaping effort is to minimize risk, and achieve greater efficiency, profitability and agility – all vital ingredients for original equipment manufacturers (OEM) in a number of verticals. Engineering Services Outsourcing (ESO) is an end-to-end solution and a strong business case can be built to an outsourcing partner with the expertise, experience, technology and customer focus to deliver benchmark capabilities based on industry’s best practices. Major aspects have channelized a new trend in ESO; the sheer diversity of engineering services, the outlook that most outsourcing will turn toward an engineering Knowledge Process Outsourcing (KPO) offering and the pressing need for cost control in yet to be stabilized global markets that are still running on budget austerity efforts.
Many of the largest OEMs in North America and Western Europe have considered ESO as an extension of their engineering organization. According to data collected in 2014, India-based providers have accounted for nearly a quarter of the overall engineering services market, which is worth approximately $80 billion a year. The Indian ESO industry has been made up of Global Engineering Centers (GECs) and engineering services providers (ESPs). Half of the top research and development (R&D) spenders operate in India through these GECs.
Recent advances in sensor technology, wireless communications, distributed computing and big-data capabilities are enabling the Internet of Things (IoT) to rapidly transform the technology landscape. IT and embedded electronics are permeating the product and service engineering process, and consumers’ expectations and requirements are increasing just as rapidly. Organizations in all industries must now deal with a profusion of data and devices. This new challenge is creating unique opportunities for ESO providers to create intelligent engineering applications to customize and monitor the entire product experience; ideas like the connected car, real-time and continuous healthcare and remote monitoring of smart homes.
Engineering and designers are creating products that capture their own usage data and establish a continuous feedback loop. This way they can make their products more intelligent, and OEMs can increasingly deliver their products as-a-service and use software applications to define the customer experience and product evolution. Companies typically outsource their engineering and design when they have sporadic engineering needs, need to load balance the work and may have trouble getting to those important projects. Manufacturers reasons to outsource are: (1) They can’t justify having their own engineering team for every design project, (2) they have an internal team with capability and capacity but need to manage spiking demand or they require specialized expertise.
ESO will be characterized by the “integration of manufacturing” as a required field of expertise. As the industrial internet becomes more secure, industrial automation, robotics and 3D printing will enable a new dynamic and a new knowledge and talent base. As an example with GE Aviation and Honeywell, the resource landscape is changing. Half of their workforce consists of Chemical / Electronic / Mechanical engineers, the other half are software engineers. This integration requires a newly defined skill set and expertise consistent to with the digital approach to manufacturing.
A wave of engineering services should present itself in two phases in the coming years:
Managed, Shared or BPO Services contracts will move away from the traditional engagement models to demand more value and tighter service integration including pricing aligned with client business metrics, stringent service-level agreements and key performance indicators. This way the business model will shift toward greater sharing of risk and reward between the customer and the service provider.
Gates L. Scott
Gates L. Scott is a Senior Land Executive with Mansfield Service Partners developing new markets and delivery fuel management solutions through the Front Range of Colorado and beyond. A former Certified Flight Instructor and commercial helicopter pilot and aviation enthusiast, he loves anything that flies!
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