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Market trends and business perspectives

Investments in digital engineering expected to grow

Investments in digital engineering are expected to account for 37 percent of the engineering research and design (ER&D) market by 2023, according to a report by Zinnov.

Global corporate engineering and R&D spend is in excess of $1.2 trillion in 2018
Z1000 organizations account for $812 billion of the global R&D spend.

Digital engineering spend is estimated at $293 billion and accounts for 24 percent of overall global corporate engineering spend. 

North America accounts for 58 percent of the Digital Engineering spend.

APAC accounts for 22 percent of the digital engineering spend. China accounts for one-third of the APAC Digital Engineering spend, driven by investments from BAT (Baidu, Alibaba, and Tencent).

Zinnov, a management and strategy consulting firm, released its global rankings of Services Providers in the ER&D segment for 2018.

The study titled, Zinnov Zones 2018 – ER&D Services, is an analysis of the Global Engineering R&D landscape, emerging players and verticals, and assessment of Service Providers in this space.

According to the study, the total Corporate Engineering and R&D spend by organizations worldwide is pegged at USD 1.2 Tn in 2018 and is expected to grow at more than 6 percent to cross $1.7 trillion by 2023.

Digital Engineering is expected to drive growth in Corporate ER&D spending over the next five years and to define the new core of companies across industries.

There is an increased focus on Digital Engineering in verticals such as automotive, aerospace, medical devices, and industrial to drive operational efficiencies and enhance customer experience. This is also enabling alternative revenue streams for enterprises.

This continued focus on Digital Engineering across verticals will boost related spend at an annual growth rate of 17 percent through the next five years and digital engineering spend will grow from a current $293 billion in 2018 to reach $642 billion by 2023.

Zinnov also shared that, Digital Engineering is also being seen as a means to “Renew the old” and “Build the new” by R&D spenders.

However, transformation through Digital Engineering is not easy as there are challenges associated with legacy complexities, change management, cannibalization concerns, and so on.

These challenges, however, are translating to sizeable opportunities for the ER&D Service Provider community. R&D spenders are leveraging ER&D Service Providers to “manage the old” by means of large product and GIC carve-out programs, “renew the old” through modernization, and “build the new” to enhance their products and services portfolio.

Speaking about the findings, Pari Natarajan, CEO, Zinnov, says: “Even though Traditional Enterprises have been increasing Digital Spend, only Tech Mafias have been successful with Digital Innovation, until now.

“Traditional enterprises need to use a multi-pronged strategy to combat the disruption and transform simultaneously.

“They need to embrace iterative product innovation, extreme agility, continuous learning collaboration – internal and external and also create highly collaborative environments. This will help drive transformation in a definitive way.”

On service providers building digital engineering capabilities, Pari says: “Service Providers need to invest along multiple dimensions such as infrastructure, ecosystem connects, IP, talent, and so on, to build Digital Engineering capabilities to drive competitive differentiation.

“Those service providers who focus on embedding digital technologies with digital outcomes and build deep capabilities to drive transformational change will succeed.”