As asset-heavy industries look to the digital future, there are many questions that need to be answered to ensure these digital investments are a success.
Looking to address these questions, Hari Sadarahalli, Corporate Vice President, Engineering and R&D Services at HCL Technologies joined Pari Natarajan, CEO at Zinnov, during a recent podcast to discuss where asset-heavy industries will focus digital technology or engineering investments, the challenges of becoming digital-ready, and how an engineering transformation partner can support and augment this digital journey.
Thinking like a software company
Enterprise digital transformation now represents the backbone of a business’ strategy. It is key to improving internal performance, but more crucially, retaining customers who expect more from their partners and providers.
Accelerated by the pandemic, industrial organizations are increasingly leveraging technology to move customers into recurring revenue streams, be agile in responding to customers’ changing demands, and continually innovate on products and services.
Asset-heavy industries are embracing this trend, and “digital engineering spend is growing much faster for these industrial companies compared to legacy engineering spend,” confirmed Natarajan.
Digital engineering spend focus
According to Zinnov Zones for ER&D Services 2021 study, investments in digital engineering will exceed the spend in traditional engineering by 2024. This focus on digital is a “necessity for asset-heavy industries looking to survive and be relevant in the future,” said Sadarahalli.
He added, “There are three areas of customer spend when it comes to digital in these industries. One is product-centric, the second is process-centric, and the third, engineering infrastructure.”
What do each of these areas focus on?
- Product-centric: Product-centric digital spend focuses on making the product smart and connected by adding new features and functionalities to improve user experience. It also includes building connected platforms and taking them to cloud and leveraging the generated data to create new revenue streams.
- Process-centric: Process-centric digital spend focuses on leveraging various digital technologies to improve engineering processes and boost efficiency and productivity, especially from the manufacturing perspective. This is driven by Industry 4.0 and the emergence of connected factories and connected digital manufacturing, through the adoption of technologies like digital thread/twins.
- Infrastructure: The third digital spend bucket covers underlying infrastructure or the technology backbone of digital transformation. It covers PLM systems, cloud infrastructure, connectivity, and security infrastructure. Tying these three together is what Sadarahalli calls connected design and manufacturing. And these types of core engineering digital investments can be the differentiator for competing businesses when it comes to traditional enterprise digital spend in asset-heavy industries.
Digital spend patterns are unique to industry needs
Each asset-heavy industry, whether automotive, healthcare, industrial, or aerospace, is different and has its own unique set of challenges when it comes to digital spend patterns.
“They must work with their existing products and future products... and many have to balance the spend between digital and traditional engineering,” said Sadarahalli.
Pointing to the healthcare industry, Sadarahalli explained that the bulk of spend is focused on digital health – they’re looking at developing and deploying connected (IoT) products that are easily accessible and can use data analytics to monitor a patient’s stats in real-time, such as heart rate and blood pressure.
This digital focus is widely different in the automotive industry where the biggest trend surrounds the development of connected systems, autonomous cars, electric vehicle innovation, and the development of next-generation batteries to power these vehicles.
However, despite the differences in priority, technology unites these industries, and many are adopting similar investment patterns, such as IoT, AI, automation, 5G, and analytics, albeit to drive different business or innovation outcomes.
Moving from legacy to digital
Transitioning from legacy to digital presents several challenges for asset-heavy industries.
Central to these challenges are the fact that these industries “were not born digital and their businesses are heavily centered around physical products,” explained Sadarahalli. Hence, the outcome of digital investments is at best incremental, unlike in pure technology companies where the transformation in business models and revenue monetization is quite radical.
He continued: “One of the main challenges, in terms of market reach, is making the business more efficient and productive, while managing costs.”
Managing costs is increasingly difficult during times of uncertainty. Today, global inflation and geopolitical conflicts, following the supply chain disruption caused by the pandemic, has caused costs to spiral.
In addressing this challenge, Sadarahalli added: “There needs to be a very delicate balance between digital versus the core product engineering spend... The solution is to embrace digital technologies and look at ways of monetizing that digital spend.”
In terms of HCL Technologies’ role, the technology service provider is acting as a consultative guide, helping asset-heavy industry customers to understand and readjust budgets for these digital versus core spending priorities, while providing advice on whether to insource or outsource these investments or skills.
An engineering transformation partner
To deliver digital engineering promises and overcome the hurdles of moving from legacy to digital, asset-heavy businesses require an engineering transformation partner.
Traditional service providers have sales and delivery departments that drive the business – they sell a service or product and deliver an immediate solution. This is impactful but does not allow for continuous innovation and problem solving – which is essential when dealing in the rapidly evolving sphere of digital.
To address this, HCL Technologies has taken on the role of a consultative digital transformation partner to solve customer problems and support their transformation journey, every step of the way.
“To do this, we have made significant investments in building a layer of talent joining us from asset-heavy industries to pool their knowledge and skills with our digital team,” explained Sadarahalli.
Natarajan commented, “HCL Tech has readjusted the engineering talent architecture of its customers so that they’re able to act very quickly on digital, without letting go of the legacy engineering...its teams are able to sit alongside customers, draft the roadmap for the transformation, and help in executing the roadmap.”
He added: “IT service providers, [like HCL Technologies], have moved from being an engineering outsourcing vendor to an engineering transformation partner. In this transition, one of the key aspects is having a very strong consulting capability at the front-end to be able to educate and advise customers in their transformation.”