June 2010
Behind every product, machine or facility in the marketplace—from a new tablet computer to a state-of-the art manufacturing plant to the package on the grocery store shelf—stands the engineering talent that made it happen. Across a range of industries, including products, automotive, resources, industrial equipment and high tech, engineering capabilities have become increasingly critical to driving growth through innovation and new-product development.
Companies face intense competitive pressure to speed products to market faster, putting a strain on traditional engineering workforces and development processes. And the cost of developing and maintaining an internal engineering capability has skyrocketed.
For an increasing number of organizations around the world, the ability to augment their existing engineering staff with outsourced services is becoming essential to meeting product development needs in a timely and cost-effective manner. An outsourcing solution can enable a company to take the best of its global staff and focus those individuals on the most critical projects that involve breakthrough innovations and new market entries. Outsourcing can reduce labor and development costs significantly as well as advance companies ahead of competitors in speeding new products to market.
Challenges and opportunities
Innovation to drive growth is more important than ever to companies’ success, especially in an uncertain economy. Yet new-product development is costly, and the great majority of spending is focused on engineering and R&D workforces. Worldwide, engineering spending dwarfs other types of technology-related expenses. Market research and Accenture analysis have found that companies spend between 4 percent and 10 percent of revenues on engineering—and many spend much more.
One common challenge is managing uneven staffing needs during the product development lifecycle. The typical company must make staffing decisions based on peak periods, resulting in high fixed costs.
Sourcing qualified engineering talent at required levels is also becoming difficult. In the United States and Western Europe, many university students are abandoning engineering and the hard sciences in favor of business or socially oriented degrees. As existing engineering workforces age and fewer young people enter the field, companies must look elsewhere around the world, or look to different sourcing arrangements, to fill critical positions.
The globalization of sourcing also presents important opportunities, however. Offerings tailored to the interests of local geographies are an increasingly competitive differentiator. Traditionally, companies have developed products for western economies and then adapted them to emerging markets. Today that strategy is changing. Now companies more often want to develop products in emerging markets, for emerging markets, by emerging markets. Therefore, gaining access to high-quality talent with deep knowledge of local needs is now critical.
An outsourcing solution for a new generation of engineering needs
Over the past two decades, outsourcing as a management discipline has become increasingly sophisticated in its ability to deliver standardized, predictable services levels at lower, variable costs. At the same time, it has expanded into ever more complex areas of the business. Engineering is one such area.
Outsourcing solutions can augment a company’s existing engineering staff, reducing costs in part by letting the outsourcing provider absorb the variable staffing requirements of the product development lifecycle. Outsourcing also gives a company access to the local talent needed to help make products more relevant to emerging markets.
At its best, engineering outsourcing can deliver global resources, as well as consulting and IT services, to augment a company’s capabilities across the entire engineering lifecycle:
- Product idea and concept design
- Product design
- Product engineering and testing
- Product development and manufacturing
- Product sales and support
The economic impact of engineering outsourcing derives from giving companies ready access to cost-effective, high-quality talent—with relevant industry experience—scaled to meet variable demand and sourced in multiple global locations close to market needs. With outsourcing, companies can perform product design and redesign, validation, simulation and modeling at much lower costs by leveraging offshore locations—resources that can also be integrated with onshore and nearshore sites.
Outsourcing providers can design manufactured parts, work with a company’s supply chain and develop the aftermarket support for engineering and technical documentation. So instead of just getting a low-cost provider, companies gain access to a partner that can architect, implement and execute the business, augmenting all relevant engineering areas and also bringing innovations to the table through ongoing consulting services.
An outsourcing provider’s IT capabilities help to make development processes faster and more efficient. Such services can include implementation of engineering collaboration systems for large companies, embedded software development for industries such as high tech and automotive, as well as testing services.
The value of integration across related functions
Outsourcing also delivers a host of other benefits to companies because of the ability to more easily integrate aspects of product development with related functions. For example, a close connection exists between engineering, supply chain, procurement and warranty management. Many recent high-profile product failures that have seriously damaged companies’ brands and reputations can be understood as inefficiencies in the sharing of product and customer information.
Warranty systems, for example, are the first line of information coming back to a company on product quality. If companies can integrate their warranty system with the engineering design system, they can receive timely information from customers, analyze the data, locate design failures faster, and then execute a rapid redesign and get the product back into production. That means retooled products can continue to be manufactured and sold, so sales do not suffer. It also means companies can reduce their warranty costs.
Companies cannot afford long cycle times to fix design or manufacturing problems. Engineering outsourcing is a way to reduce those kinds of risks, protect revenue streams and extend brand value and customer relationships.
Reducing costs … and much more
The most obvious and important benefit that executives expect to achieve from outsourced engineering services is cost reduction, and experience indicates such savings can be significant—from 30 percent to 50 percent savings on labor through arbitrage focusing on the use of high-quality resources at lower-cost locations.
However, companies must be careful not to set their savings targets too low. In fact, potential savings can be far greater if one looks beyond only the cost of labor. By seeking additional efficiencies in procurement and the supply chain, as well as tying warranty management to the manufacturing system and managing an extended offshore supplier base, companies can generate 20 percent to 30 percent savings on the overall development lifecycle, which is a far more impressive benefit than simply labor savings alone.
For example, a leading aerospace and defense company has outsourced its engineering services across a range of functions—mechanical drafting, test data reduction, warranty administration and support, parts sales and planning, purchasing and sales support. Aware of the potential benefits of integrating other services with engineering activities, the company has partnered with its outsourcing provider in supply chain management and product lifecycle management, including process engineering, process deployment and tool enhancement.
As a result, the company has achieved engineering cost reductions of more than 30 percent. With contracted service levels and a factory mindset for operational metrics, the company has also achieved continuous improvement in relevant work processes.
The integrated approach at the heart of engineering outsourcing can lead to improved business efficiencies in product development. A large global company typically works with multiple suppliers across many regions, which makes configuration management—overseeing design changes across all the participating suppliers and manufacturers—exceedingly challenging. Relying on an outsourcing provider with visibility across such a complex environment can protect against damaging development delays and cost overruns.
Conclusion: A new level of efficiency and innovation
Visionary companies are working today to define the next generation of engineering innovations, and outsourcing will play a critical role. Outsourcing gives companies scalable, flexible access to engineering talent across geographies—professionals with deep domain experience, local language skills and an understanding of specific market needs.
Companies can also use the industrialized processes and scalable delivery capabilities of an outsourcing provider to improve the speed with which they deliver new products to meet customer demands. Engineering outsourcing can meet companies’ relentless need to drive down costs, while also generating the breakthrough innovations needed to achieve high performance.
About the authors
Ken Taormina is the global managing director for Accenture Engineering BPO Services.
Mahesh Jadhav is the global strategy lead for Accenture Engineering BPO Services.
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