How Uncertainty Is Driving Engineering Services Outsourcing

Harvard Business Review (HBR) last year evaluated the relative uncertainty of 49 industries in an article (The Industries Plagued by the Most Uncertainty). Industries that were categorized with most uncertainty are also those that, in our analysis, are among the greatest users of engineering services. We believe industry uncertainty is one of the major driving forces behind the adoption of engineering services outsourcing.

The central premise of the HBR article is that although uncertainty is increasing it isn’t affecting all industries the same way. The article evaluates uncertainty across two dimensions: of demand uncertainty and technology uncertainty. Demand uncertainty arises from unknowns associated with customer demand and preferences such as will customers buy the product? A mobile phone for emerging markets is a good example of demand uncertainty: manufacturers may not know hidden customer preferences of emerging market consumers. Technology uncertainty arises from unknowns regarding technologies that might emerge to create a new solution such as can we make a technically desirable solution? The battery for electric vehicles is a good example of technology uncertainty where manufacturers may not know which battery technology will be the winner in the energy storage race.

The 49 industries were plotted on a 2×2 matrix with demand uncertainty on the vertical axis and technology uncertainty on the horizontal axis. There are 15 industries out of the 49 evaluated industries that came in the quadrant of both high demand uncertainty and high technology uncertainty. Most of these 15 industries are part of five of the six big verticals we are evaluating for our upcoming Engineering Services Outsourcing Blueprint Report. These engineering services verticals are: automotive, aerospace and defense, telecom and hi-tech, medical devices, industrial equipment and machinery, and energy and utilities. The only engineering service vertical that doesn’t have any industry with high demand and technology uncertainty is energy and utilities.

In our study, we found uncertainty to be a major contributing factor in driving engineering services outsourcing. In fact, engineering service providers are helping buyers to navigate technology and demand uncertainty.

Technology uncertainty can be navigated by investing in multiple technologies in a cost effective way. Here engineering service providers are providing: offshore leverage, skills in multiple technologies, and cross-vertical expertise and experience to help buyers to hedge their technology bets and take advantage of skill sets which may not be readily available in their own organization.

Demand uncertainty can be navigated by reducing time to market and develop solutions for different segments fast. Here engineering service providers are providing: offshore leverage, extended teams, value engineering, knowledge based automation and design thinking to help buyers develop solutions for different customer segments in a cost effective way.

How are different engineering services providers helping customers in different industry verticals navigating uncertainties? What are the real capabilities of different engineering service providers in these verticals? In our inaugural 2015 Engineering Services Blueprint Report (to be released in July 2015), we will deep dive into the vertical capabilities of leading engineering service providers. Keep watching this space.