Evolution of Engineering Services and Outsourcing in Europe
Digital technologies such as AI, IoT, and digital twins have exhibited rapid growth over the last decade, and for good reason. But while the industrial sectors make up for 80% of the EU’s export economy, research suggests digital engineering enablers have attracted investments worth just 3% of the sectors’ combined €11 trillion turnover. Which is why, despite rapid progress, Europe’s digital engineering growth often fell short when it came to transforming traditional industry players. That was until the pandemic changed things.
The onset of COVID-19 gave rise to waves of digitalization that swept across industries and geographies. Engineering was no exception. The pandemic and its subsequent impact have served as a catalyst for enterprises accelerating their digital transformation journeys. It boosted the adoption of digital enablers that have the potential to optimize engineering processes across industrial sectors like automotive and aerospace through rapid product development, enterprise-wide connectivity, re-engineering of customer experiences, and operational excellence.
With the slow uptake of technology being replaced by rapid digital acceleration, European players are gradually adapting to the new ecosystem. Digital engineering capabilities are being accelerated by the democratization of technology and the advent of 5G networks. For example, in the aerospace industry, digitalization is reducing fuselage splice times by 95% at a higher quality.
The rise of digital collaboration tools during the pandemic has introduced decentralization as another vector of growth for engineering services. Increasing collaboration between engineering service providers and OEMs and the globalization of R&D activities have led to heightened outsourcing activities.
A Changing Landscape and the Evolution of Engineering Services
The growing involvement of engineering services providers (ESPs) in supporting core engineering practices has reinforced offshoring efforts with special focus on activities like remote product development. When it comes to outsourcing, the blurring of the line between core and non-core activities has been marked by the establishment of industry-wide collaboration frameworks that combine the role and expertise of OEMs, suppliers, and pure software players. And European automakers are at the forefront of this change.
Pandemic-induced outsourcing may have renewed the emphasis on engineering services, but the ESP landscape in Europe has been on an evolutionary path for a while now. During the last couple of decades, there has been a gradual but significant shift in the role of engineering services stemming from changing needs. In fact, OEMs have gone from outsourcing the execution of simple mechanical engineering activities to outsourcing end-to-end delivery – design, development, and deployment – of more critical activities.
In my experience of working with a European manufacturing company, I have seen this trend evolve. Fifteen years ago, the organization embarked on its outsourcing journey. Back then, however, its outsourcing activities were limited to non-core, low-end control software development & mechanical engineering functions. Today, the organization has successfully outsourced the development and implementation of a complete scalable IoT platform.
But it’s not just the role of engineering services that has changed. The shifting needs and an abundance of outsourcing opportunities have resulted in the proliferation of new players within the ecosystem. Moreover, with OEMs looking to outsource core activities, ESPs are finding it necessary to enhance their domain capabilities by investing in tools, processes, and innovation.
The Role of Technology
When considering the transformation of engineering services during the last twenty years, the role of technological growth cannot be overstated. In the past few years alone, engineering-intensive sectors have witnessed the advent of enablers like IoT, cloud, digital twins, analytics, extended realities (AR/VR), and AI. In Europe, automation, analytics, cybersecurity, and servitization are some of the trends that are being observed across industries.
Let’s take the case of industrial IoT, or IIoT. With the manufacturing shop floor generating incredible volumes of data through control systems, more and more organizations are realizing the benefit of harnessing this information to make detailed and informed decisions. IIoT has made it possible to do this in conjunction with technologies like machine-to-machine (M2M) systems, AI, edge analytics, and cloud solutions capable of hosting entire PLM/MES systems.
Similarly, in the automotive sector, mobility technologies are fast-tracking the evolution of a vehicle-to-everything (V2X) connectivity. Advancements such as automated driver assistance systems (ADAS), in-vehicle infotainment (IVI), and the gradual shift from numerous distributed function-specific ECUs to a more manageable number of domain-specific control units (DCU) are among the outcomes of technological development in the automotive industry.
From an outsourcing perspective, organizations stand to benefit significantly by leveraging the ESPs’ position to apply these technologies to operations. The advantages include increased operational efficiency, reduced dependency on in-house engineering expertise, reduced cost and time, data availability, and minimizing downtime through predictive maintenance.
As we move forward through this constantly evolving environment, it will be interesting to see the unfolding of the growing emphasis and investment in R&D and innovation. Industrial tech, for instance, is expected to position Europe as a leader in sectors like manufacturing, pharmaceuticals, and automotive.
Finally, the pandemic, disruptions in technology, and the political and regulatory climate will play an increasingly important role in creating urgency around widespread adoption of decentralized, sustainable engineering practices through outsourcing. The journey ahead is one of positive change. And ESPs must be prepared to execute the shift away from traditional delivery models towards a future of greater value and efficient service integration.
