- Global Digital Engineering spend will grow rapidly at 19% to touch USD 911 Bn by 2023
- Digital Engineering investments will focus on 5 key themes – Tele-X (Tele Everything), Contactless, Intelligent Workplaces, Digital Thread, and Next-Generation Governance, to weave an antifragile digital fabric
NEW YORK, June 16, 2021 /PRNewswire/ -- The adoption and expectation from digital is high across companies and consumers, which is reflecting in decision-making as well as investments of companies. The fact that Digital Engineering spend will constitute nearly 50% of the overall Global ER&D spending by 2023 is a testament to this heightened focus on digital. Zinnov believes that the appetite for digital over the next 4 years will surge unabated, across newer technologies, industry players, and changing customer, employee, and partner dynamics.
At the onset of the pandemic, the shift to digital became the predominant path to building antifragility in businesses across verticals – Retail enterprises invested 3 years' worth of digital transformation in 6 months in 2020 alone, BFSI enterprises are expected to spend USD 100 Bn by 2023, and Healthcare companies will witness a 5X growth in the number of consumers using telehealth services over the next three years alone.
The Hi-Tech verticals cumulatively accounted for 36% of the global ER&D spend in 2020 alone, and will grow at a steady clip of ~12% and exceed USD 750 Bn in the next 3 years, Zinnov's analysis shows. This spend was buoyed by demand in certain pockets such as Cloud & Collaboration, OTT, and software-based network architecture. Leading the pack with USD 219 Bn in Digital Engineering investments in 2020, Software & Internet companies continue to display a strong willingness to adopt, experiment with, and implement new-age technologies compared to companies in other verticals.
A key region of growth is North America, home to enterprises ahead in the digitalization curve and accounting for the largest share of the overall global ER&D spending pie. North American enterprises will continue to be the growth leaders through 2023 and will constitute nearly 60% of the global Digital Engineering spending. The high concentration of Hi-Tech companies in the region, led by Software & Internet companies, is a major fillip to these massive investments.
Digital Thread to usher in next-gen 'Intelligent' outcomes
A key lever of digital enablement is digital thread – which is playing a strategic role in enabling touchless manufacturing systems and serviceability. By incorporating 'intelligence' at every step of the value chain and enabling outcomes by intertwining next-gen technology into the process, digital thread will become a critical component for antifragility in manufacturing-led enterprises. In fact, digital thread is already transforming the way products are designed, manufactured, and serviced across Z10001 enterprises. From a use case perspective, smart manufacturing, tracking, and smart insights already lead adoption, while smart design is still playing catch up.
With Smart Manufacturing increasingly becoming table stakes for every vertical, factory automation, remote monitoring, and predictive maintenance of assets and products have become basic hygiene to drive operational efficiencies. Although smart design is yet to witness significant adoption, with collaborative Cloud-based design gaining prominence in a post-pandemic world, it will witness significant traction from enterprises, with North America being no exception to this trend.
Outsourcing critical for accelerated GTM and Product Development
The Service Provider (SP) ecosystem has been instrumental in driving the adoption of this new-age tech across enterprises. Zinnov's analysis highlights that SPs with strong Digital Engineering capabilities and those that have a robust play in Hi-Tech and Services-led verticals will garner greater wallet share. From a geographical perspective, North American SP ecosystem, dominated by staffing firms, have yet to catch up with their Indian and Eastern European counterparts, who are growing at a faster rate owing to their superior Digital Engineering capabilities.
Our conversations with key global CXOs reveal that enterprises are leaning on SPs for both 'core' as well as 'context' work. SPs are increasingly taking on Digital Engineering workloads, as a matter of differentiated value proposition for enterprises. From leveraging SPs for both "build the new" (Digital Engineering-led initiatives) as well as "renew the old" (legacy and end of life product workstreams) initiatives, enterprises are relying on SPs to accelerate their go-to-market, enable faster development, and reduce time-to-market. Verification and Validation remain the top outsourced workload, while Cloud and Big Data Engineering present significant growth opportunities.
"Digital Engineering being a prominent subset of overall Engineering R&D spend, it is on leaders' radar now more than ever. With more than one-third of the overall Global Engineering R&D spend (USD 1.5 Tn in 2020) being channelized towards Digital Engineering, it's clear that enterprises are leaving no stone unturned in their quest to future-proof their businesses. The subsequent enterprise focus on building Digital Engineering capabilities such as Tele-X, Contactless, Digital Thread, and Next-Generation Governance will forge the way forward. However, the existing gaps in talent are hindering their Digital Engineering-led transformation agendas. Strategic Partnerships, with shared outcomes, will be key to unlock true value from the ecosystem." – Pari Natarajan, CEO, Zinnov
1: Top 1000 global ER&D spenders across 20+ verticals
Founded in 2002, Zinnov is a leading global management and strategy consulting firm, with presence in Santa Clara, Houston, Bangalore, Gurgaon, and Paris. Over the past 18 years, Zinnov has successfully consulted with over 250+ Fortune 500 enterprises and technology companies to develop actionable insights that help them create value – across dimensions of both revenue and optimization. With core expertise in Product Engineering, Digital Transformation, Innovation, and Outsourcing Advisory, Zinnov assists clients by:
Enabling global companies to develop and optimize a global engineering footprint through center setups, and technology and functional accelerators to achieve higher R&D efficiencies, innovation, and productivity;
Advising global PE firms in asset shortlisting and target evaluation, commercial due diligence, and value creation;
Growing revenue for companies' products and services in newer markets through account intelligence, market entry, and market expansion advisory;
Structuring and implementing Digital Transformation levers enabled by technologies like AI/ML, Cloud, IOT, and RPA;
Helping global companies outline and drive their open innovation programs, design and operate accelerator programs, and enable collaboration with start-ups across specific use cases and predefined outcomes.
With their team of experienced consultants, subject matter experts, and research professionals, Zinnov serves clients from across multiple industry verticals including Enterprise Software, BFSI, Healthcare, Automotive, Retail, and Telecom in the US, Europe, Japan, and India.