ISG Provider Lens™ Engineering Services - USA 2019 - Life Sciences & CPG - Manufacturing & Plant/Process Engineering
Engineering Services is a traditional market that is seeing a lot of transition; major shifts are happening in this space. In recent years digitalization has changed the way engineering services are conducted and delivered, because engineering includes more and more digital elements. Because ISG Research is focusing in general on areas with a high share of digital elements, this is the first time this study is being conducted.
As this is a rather new area, there is no well-established structure of classification for this type of service. The segmentation used in this study is mainly oriented toward a combination of industries with similar functional aspects, e.g., the automotive industry combined with the functional aspects of manufacturing/plant engineering. Furthermore, this first edition starts with focusing on a number of selected segments that appear to be most affected by digitalization. Due to the rapid development of the markets, future editions of this study likely will consider other segments and make more additions to the existing ones. The industries being considered in this study are the following:
- Automotive
- Chemicals and Oil & Gas
- Life Sciences and Consumer Packaged Goods (CPG)
The study assesses the strength of the portfolios and market competitiveness of the providers acting in these segments.
The research targets those engineering services in which the related digital components (software, data capturing, process control, analytics, etc.) are a substantial part of the engineering object.
Service providers are trying to address every function in play and focus on the digital elements of engineering services — from concept development, physical product development and optimization of industrial design and operations, to software product and application software development.
Transforming from a traditional to an agile business environment is key. Technology changes, along with newer business models, have forced clients and service providers alike to pursue greater agility. M&As and partnerships along the value chain have been vital for providers to be able to offer end-to-end solutions to clients.
The production process development discipline is being rewritten with technological innovation, notably with more sensors and computing capability being infused into modern products.
Manufacturing and plant/process engineering services are becoming more connected and intelligent as shop floor processes are optimized with the pursuit of IoT and Industry 4.0 applications.
The engineering ecosystem is increasingly inclined toward software development and services. IoT software applications for connectivity, mobility, predictive maintenance, operational technology (OT), data analytics and digital supply chain are transforming software rules. IT-OT integration is becoming increasingly important for better business and technology synergies.
Technology investments in augmented and virtual reality (AR/VR), robotics, automation, additive manufacturing, 3D printing, software-defined networks (SDN), network function virtualization (NFV) and IoT have been on the rise and are transforming enterprises. This transformation is affecting both providers and clients and is helping them collaborate and achieve better business outcomes. Up-skilling the existing workforce and employing specialists in emerging technology areas are helping drive new-age solutions. Industry-specific knowledge and skills have been important in addressing the problems in different verticals. With increases in R&D spending, investments in emerging technologies and academic associations, engineering service providers are keeping abreast of the industry changes and partnering with clients to address any transformation problems at every step.
Business and revenue models have kept pace with changes in the market landscape and digital transformations. Traditionally in the engineering services market, time and materials (T&M) and fixed-price/project-based models have been popular with both providers and clients. But now with client requirements and delivery models changing, managed services, risk-reward and outcome-based models are gaining popularity. Outcome-based models are becoming important as a result of IoT gaining popularity and more enterprises shifting to a connected ecosystem. Many such enterprises are eager to pay for a product or service and move responsibility for operations and maintenance to the provider. This model can be of mutual interest to the client and the provider and helps them gain confidence in each other. More providers are adopting this model, thereby gaining customer faith and improving relationships. Customers also are able to relate and understand changes in their processes and build on them for more transformational engagements.
Automotive
The automotive vertical has many software and technology-driven implementation developments. From product to process to marketing strategy to consumer connection, engineering service providers are reaching out to original equipment manufacturers (OEMs) and other automotive clients with different ways to optimize business and gain momentum in the market. Changes in revenue and business models are arising in the market, along with new demands and expectations from both manufacturers and the consumers.
Major challenges that providers are facing include revolution in the autonomous vehicle and the connected car ecosystem markets. Cars increasingly are part of a connected system, where each new car may be connecting via internet in the coming three to five years. Service providers are investing in autonomous cars and using the most advanced technological features to make them better-suited to user needs. Digital transformation is driving each business, and connected ecosystems are creating new business opportunities. Technologies like IoT are changing business models by making changes to products and production systems.
Other factors are also influencing the automotive value chain. As cars become more connected, digital security is threatened and more security features are being tested and used to protect data and vehicle systems. More stringent regulations are being imposed for CO2 emissions and pollution control. Optimizing manufacturing processes and achieving reduced time to market with better safety features are some current key focus areas for automotive players. All these changing technologies and business requirements make it important for every company in the market to have skilled workers and specialists who can adapt to the changes. To achieve desired business outcomes, companies are adopting strategies to develop the right competencies and address change. As a result, training the existing workforce and increasing R&D spending are now part of business plans.
Analytics, mobility and IoT are strong technology influences in this vertical. With more being connected in cars, there are opportunities to improve customer interaction, reduce insurance costs and increase safety. Companies are pursuing these opportunities by developing different mobile applications, connecting to the cloud, supporting more user-adaptive applications and integrating their devices with different third-party apps.
Chemical, Oil & Gas
The chemicals and oil & gas industries are transitioning, and their current need is to optimize efficiency and cut costs. Countering the challenges of maintaining old machines against introducing new-age technologies has been challenging. In this sector, transformation involves reducing waste, retrofitting to produce and measure outcomes better and reducing manufacturing and plant costs. Addressing environmental and safety hazards is becoming increasingly important because of strong regulations being implemented across the globe. Industrial IoT (IIoT) is the application of IoT capabilities in industrial, manufacturing and agricultural environments. Combining connectivity, sensing capabilities and advanced analytics enables manufacturers to evolve their legacy plant floor control systems and integrate enterprise-wide systems to increase value across their manufacturing operations. Analytics and visualization are helping businesses to prepare for the future and understand cost pressure and production utilization parameters. Change in oil prices and the shift in energy demand from traditional coal markets to natural gas are changing energy consumption patterns.
The competitive landscape has been changing, and the pressure to improve efficiency, reduce costs, change processes and adapt technology to improve value have been driving the market. There are more service offerings across the value chain, so selecting the right partner is key for clients. Understanding and addressing domain-specific challenges has been an important focus for service providers. Automation and digitalization have been driving business, especially for improving asset performance and planning plant maintenance and reliability.
CPG and Life Sciences
Today’s connected customers are continuously asking for more, and the challenge for consumer goods companies is to meet those expectations and improve business efficiencies. CPG businesses are exposed to many changes and need to satisfy local regulations and local market demands. Some of the main issues CPG companies need to address at present include safety, digital supply chain transformation, cost-based business model creation, cost reduction and alignment with compliance requirements. Optimizing productivity and collaborating with suppliers and other parties in the value chain are important touchpoints for CPG businesses. Breaking silos and finding solutions that help companies address their needs and work more collaboratively are key. Businesses are putting strong focus on innovation and reducing cost through higher efficiencies, and service providers are trying to work in those areas.
Some of the major challenges imposed on today’s life sciences segment include cost and reimbursement changes, regulatory and compliance changes, better-connected ecosystems for patients and caregivers, and other innovation across the segment. Organizations are moving toward digital initiatives to reshape their processes and workforce. Supply chain solutions need to align with other changes in the vertical. For example, security vulnerabilities need to be identified, and traceability systems can continue to improve to ensure product integrity and quality and to avoid data loss.
Domain-specific knowledge and expertise to address industry problems are important. Clients consider it essential to have an experienced provider. For pharmaceutical and medical product manufacturers, effecting change in manufacturing execution systems (MES), product lifecycle management (PLM) and other manufacturing systems requires providers with industry- and project-specific knowledge to improve processes with upgraded technology.