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1、Engineering and R&D Report 2023 Copyright 2023 Bain&Company,Inc.All rights reserved.This work is based on secondary market research,analysis of financial information available or provided to Bain&Company and a range of interviews with industry participants.Bain&Company has not independently verified
2、 any such information provided or available to Bain and makes no representation or warranty,express or implied,that such information is accurate or complete.Projected market and financial information,analyses and conclusions contained herein are based on the information described above and on Bain&C
3、ompanys judgment,and should not be construed as definitive forecasts or guarantees of future performance or results.The information and analysis herein does not constitute advice of any kind,is not intended to be used for investment purposes,and neither Bain&Company nor any of its subsidiaries or th
4、eir respective officers,directors,shareholders,employees or agents accept any responsibility or liability with respect to the use of or reliance on any information or analysis contained in this document.This work is copyright Bain&Company and may not be published,transmitted,broadcast,copied,reprodu
5、ced or reprinted in whole or in part without the explicit written permission of Bain&Company.1Engineering and R&D Report 2023ContentsThe Innovation Race:Winners Are Investing Now.2Bridging the Talent Gap in Engineering and R&D .8Engineering and R&D:The Path to New Sources of Value .13The Digital Shi
6、ft Fuels Outsourcing in Engineering and R&D.19 2 2The Innovation Race:Winners Are Investing NowAs costs rise,engineering and R&D leaders are finding new ways to ensure a strong return on investment.By Daniel Suter,Bill Radzevych,Neil Malik,Sudheer Narayan,and Jessica PortAt a Glance Executives forec
7、ast a 10%compound annual growth rate for engineering and R&D spending through 2026,fueled by investments in digital engineering.Investing in engineering and R&D during a recession can help companies pull ahead in the innovation race.During past downturns,growth in engineering and R&D spending was mo
8、re resilient than GDP growth.The innovation race has become more costly than ever.Investment in engineering and R&D(ER&D)as a percentage of revenue has increased significantly since 2016(see Figure 1).And despite a looming recession,executives expect the growth in ER&D spending to continue rising,ac
9、cording to a recent Bain&Company survey of more than 500 senior executives(see Figure 2).ER&D is a core function for many large companies.Historically,these firms have focused on making products better and cheaper.Today,a growing number see ER&D as a strategic capability that will determine their fu
10、ture success and shape new business models.Investments in ER&D not only improve products but also increasingly reinvent or disrupt parts of the business.3Engineering and R&D Report 2023Sources:S&P Capital IQ;Bain analysisChange in spending as a percentage of revenue,20162021Engineering and R&D23%Cos
11、t of goods sold2General and administrative5Sales and marketing10Figure 1:The share of engineering and R&D spending has risen sharply compared with other expense categories100%Source:Bain Engineering and R&D survey 2022(overall n=505;Americas n=177;Asia-Pacific n=109;Europe,the Middle East,and Africa
12、 n=217;automotive and mobility n=92;aerospace and defense n=95;medical devices n=47;advanced manufacturing and services n=123;energy and natural resources n=77;telecommunications n=69)How do you expect the current economic crisis and inflationary environment to impact engineering andR&D budgets?(sin
13、gle choice)Percentage of survey respondentsAmericasAsia-PacificEurope,theMiddle East,and AfricaAutomotiveand mobilityAerospaceand defenseMedicaldevicesAdvancedmanufacturingand servicesEnergy and natural resourcesTelecommunicationsIncrease budgetNo significant impact to budgetDecrease budgetFigure 2:
14、Executives plan to increase engineering and R&D spending despite the uncertain economic outlook4Engineering and R&D Report 2023ER&D costs are rising,in part because disrupting markets(or responding to disruption)is more difficult than improving an existing producteven with greater availability of da
15、ta and computing power.A good example is Moores Law.The number of researchers required in 2017 to achieve the famous doubling every two years of the density of computer chips required 18 times greater the number of researchers that a company needed in 1971,according to a report by the National Burea
16、u of Economic Research.Overall,spending on ER&D is set to rise at a compound annual growth rate(CAGR)of 10%between 2022 and 2026(see Figure 3).As spending soars,leadership teams are redoubling their efforts to achieve a solid return.For the purposes of our analysis,we define ER&D as the wide array o
17、f activities aimed at developing new products and services and improving existing ones.These activities include early foundational research,the design testing and verification of products as well as developing infrastructure such as a manufacturing plant,and post-production support.A key factor fuel
18、ing higher ER&D spending is digital engineering,the discipline of developing new,connected,and digitally enabled products and services using technologies such as artificial intelligence(AI),machine learning,and cloud computing.Examples of digitally engineered products include autonomous vehicles and
19、 production plants wired for Industry 4.0.Executives expect investments in digital engineering capabilities to rise even fasterwith a CAGR of 19%between 2022 and 2026 nearly double the pace of overall ER&D spending.Sources:S&P Capital IQ;Zinnov;expert interviews;Bain analysisEngineering and R&D spen
20、ding,20192026(in billions of euros)20191.457B20201.46420211.68820221.84820232.02920242.23120252.46020262.719Digitalengineering Coreengineering CAGR20192022CAGR2022202632%37%38%41%45%49%52%56%18%3%8%19%2%10%ForecastFigure 3:The compound annual growth rate for engineering and R&D spending is forecast
21、at 10%through 20265Engineering and R&D Report 2023In fact,investing in ER&D during a downturn can help companies pull ahead in the innovation race.During past recessions such as the 20082009 global financial crisis,ER&D spending was more resilient than GDP growth,according to Bain research.And betwe
22、en 2014 and 2021,global ER&D spending grew nearly four times faster than GDP.One explanation is that a large body of engineering and R&D work typically spans longer time horizons and thus tends to be less fungible than other types of spending.The most successful companies even use recession years to
23、 outinnovate competitors by acquiring companies at lower multiples,poaching critical talent,and investing in intellectual property and R&D;downturns that trigger large-scale layoffs in the technology sector also offer ER&D companies an opportunity to hire much-needed talent.Our research shows that f
24、ive major challenges for ER&D-focused companies are fueling the innovation racenamely,shortening time to market;making new technologies more affordable;embedding digital capabilities into hardware-centric engineering teams;exploring new frontiers of value creation;and reengineering for environmental
25、,social,and corporate governance(ESG)strategies.1.Shortening time to marketEngineering companies face growing pressure to bring new products to market faster and to incorporate cutting-edge technologies into the R&D process to generate a stronger return on investment(ROI).For example,powerful chipse
26、ts and microprocessors are enabling products and solutions based on AI.That shift supports differentiation,increases revenue and profits,and speeds time to market.But it also requires new capabilities.The lengthy and complex process of drug discovery illustrates the challenge.A new Massachusetts Ins
27、titute of Technology deep learning model designed to identify drug candidate molecules performs that task 1,200 times faster than existing computational models.Advances in AI for drug discovery are likely to accelerate in the coming years,and pharmaceutical companies without in-house AI or deep lear
28、ning capabilities will have to acquire that capability.Many are likely to partner with or acquire promising biotech start-ups rather than build their own technology from scratch.2.Making new technologies more affordableWhen companies shift to new technologies such as cloud-based software or electric
29、 cars,the immediate result is often higher costs since products need to be redesigned from scratch.Mass-market electric cars are still more expensive than their combustion-engine equivalents,for example.But the firms that lead in bringing down the cost of new technologies gain a significant competit
30、ive edge.Automakers such as Hyundai and Tata Motors are investing heavily to build more affordable models.Hyundai is planning to build a small electric car that would cost less than$20,000,and Tata recently launched preorders for an electric car that will cost$10,000.6Engineering and R&D Report 2023
31、3.Embedding digital capabilities into hardware-centric engineering teamsDigital technologies underpin new business models.They also help organizations move from a cyclical,multiyear R&D process to a continuous one.One leading German engineering company has increased its digital training budget by 10
32、 times over the past three years,a move that more than doubled the number of workers with next-generation digital skills.4.Exploring new frontiers of value creationFor many industries,searching for new ways of creating value means redefining business models to focus on outcomes instead of products.S
33、iemens Building Technologies,for instance,is shifting from selling building products to providing a building performance management system that combines its traditional products with cloud-based solutions and edge computing,which is a form of computing done on-site or near the source of data,thereby
34、 eliminating the need for remote processing.5.Reengineering for ESG strategiesAs governments and industries set targets to achieve net zero emissions,industrial companies are rethinking their use of resources in an effort to move toward sustainable inputs and circular supply chains.One leading Europ
35、ean metals processing company is increasingly deploying digital twins and thermodynamic modeling across its operations to better calibrate equipment and significantly reduce energy consumption.Addressing the five challenges above amid engineering talent shortages and high attrition is even harder.Ou
36、r research shows more than 70%of engineering and R&D companies report talent shortages,and many are losing engineers to tech competitors such as Alphabet and Meta.Our research shows more than 70%of engineering and R&D companies report talent shortages,and many are losing engineers to tech competitor
37、s such as Alphabet and Meta.Best practices for maximizing ROIAs the cost of innovation rises,leadership teams are rethinking ER&D strategies and redoubling their efforts to make them as efficient as possible.Successful companies ensure the highest ROI by following a few best practices:7Engineering a
38、nd R&D Report 2023 Redefine core vs.noncore capabilities.Leaders regularly assess which engineering capabilities are core,or key,to differentiating the business and winning new customers.Some capabilities are becoming critical differentiators,such as Industry 4.0 technologies for machinery and equip
39、ment companies.For instance,a leading industrial equipment maker specializing in pumps,compressors,and turbines recently reevaluated its product portfolio and engineering activities as part of its ESG strategy,choosing to prioritize the development of components,which can dramatically reduce energy
40、consumption in its compressors and vacuum pumps.Centralize and democratize access to strategic technologies.Ensure technological capabilities are available to the entire organization and not siloed inside one division.One global medical technology company that previously had robotics and digital cap
41、abilities embedded in specific divisions has now created digital-and robotic-enabled healthcare platforms that combine the best capabilities in one place,accessible to all divisions.That allows the company to leverage those technologies for surgical equipment,orthopedics,and neurotechnology.Organize
42、 for speed.Deploy continuous development models.A leading European automaker is adopting a more Agile process to shorten its development cycles and innovate faster.In a first step,the automaker will shift to continuous software development for each car model.Over time,it will do the same for other p
43、arts of the development process.To prepare for that change,it is retraining thousands of engineers.The full migration represents a paradigm shift:Instead of completing a product cycle and starting a new one,original equipment manufacturers will continuously improve each car model and use software up
44、dates to keep digital features current.For automakers,the shift to continuous development means greater flexibility and faster time to market.Become a talent magnet.Rising attrition levels have made attracting and keeping engineering talent a top priority for many traditional ER&D companies.One solu
45、tion is to develop what some companies call a technology hub in cities teeming with tech expertise.A second approach is to acquire software companies as cultural umbrellas that draw tech talent.Some companies embrace a bigger shift,transforming the culture of their engineering and R&D departments to
46、 appeal to young engineers.To do that,they flatten hierarchies,offer permanent learning opportunities,focus teams on the most exciting problems,and allow remote work.Play offense on innovation.Collaborate with external partners,including start-ups and other innovation sources,to accelerate the pace.
47、Acquire new capabilities and technologies through M&A.Verizon,for instance,has created a new business incubator to develop its product ecosystem,including 5G,and explore adjacent technologies such as location technology and sensor intelligence.Verizons investments in these new business areas aim to
48、further help the company innovate and outpace the competition.Engineering-heavy companies face a once-in-a-generation strategic shift.Digital technologies offer the opportunity to reshape traditional ER&D businesses,but deploying them brings new challenges.Winners in the coming decade will be those
49、that use those technologies to accelerate time to market,lower the cost of new products,and take a novel approach to value creation.8 8Bridging the Talent Gap in Engineering and R&DHow successful companies are transforming engineering roles to attract and retain top talent.By Daniel Suter,Bill Radze
50、vych,Junna Hashimoto,Parvathy Kailasam,and Jessica PortAt a Glance Nearly three-quarters of engineering and R&D-focused companies report talent gaps.Data engineering and analytics,cybersecurity,and the Internet of Things are among the most sought-after capabilities.Leading companies are offering bet
51、ter work benefits and unearthing new talent pools.Every engineering chief technology officer is feeling the pain.Industrial firms are urgently seeking to expand their ranks of engineers to cope with new technologies and fast-changing markets while tech giants have been luring away some of their best
52、 engineers for years.In fact,73%of engineering-and R&D-focused(ER&D)companies report talent gaps,and that divide will widen as baby boomers retire more quickly than new graduates fill their shoes.Adding to the problem,midcareer engineers are transitioning to nonengineering roles.Globally,the percent
53、age of engineers quitting their jobs at engineering companies has risen to between 16%and 17%,up by nearly 2 percentage points from three years ago.The shortage of engineering talent is affecting all geographies and is likely to continue throughout the coming decade.Leading companies are realizing t
54、hat in a tight talent market,its as important to improve the attractiveness of engineering roles as it is to scour the market for new pockets of labor.9Engineering and R&D Report 2023Employee demands are changing,and traditional engineering firms wont be able to attract talent to expand their roster
55、 of engineers without significantly transforming the value proposition they offer to potential employees.With the recent waves of tech layoffs,there is a rare opportunity to recruit some much-needed talent.The engineering brain drainAs technologies in all industries grow increasingly integrated and
56、complex,IT and engineering functions are converging in companies large and small.That means tech companies such as Alphabet,Amazon,and Microsoft are entering industrialized markets outside the software sector and competing for a slice of the business.Fierce competition for talent means that attritio
57、n rates at ER&D companies are likely to increase over the next three years,according to Bain research.That trend will be exacerbated by the retiring baby boomer generation.The number of graduates in STEM disciplines grew at an average annual rate of 1.8%from 2016 to 2019 in OECD countries,while the
58、population reaching retirement age(65 and older)during the same period grew at 6.2%each year.About 40%of young engineering professionals globally say they are likely to change jobs within the next six months.But young employees are also leaving engineering firms for more attractive jobs.About 40%of
59、young engineering professionals globally say they are likely to change jobs within the next six months,according to a recent Bain survey.Many say they are frustrated by the low level of productivity at traditional engineering firms.For instance,aerospace and defense engineers say they spend only abo
60、ut half their time on active engineering work,of which more than 30%is spent on rework and more than 40%on lower-value tasks.Attracting top talentWhile all engineering firms are competing for talent,only a few succeed at consistently attracting the best people.Those winning this talent war follow a
61、few key guidelines:Provide career path transparency.In the competition for talent,its important to determine what rates and packages other industries are offering for specific roles and candidate backgrounds.If it is tough to dramatically change compensation in low-margin industries,CEOs do have sev
62、eral other options to recruit and retain top talent.For one,they can reward top employees with promotions.Many engineers move to tech firms,where promotions to new roles are possible every year or two.By contrast,it may 10Engineering and R&D Report 2023take engineers five years to be promoted at tra
63、ditional engineering or industrial firms.Shortening the promotion cycle will help secure young and midcareer employees.It also helps to make sure engineers understand what it takes to earn a promotion.At software company Miro,for example,managers share their 30-,60-,and 90-day goals with new hires a
64、nd help create a roadmap to achieve them.Pay for skill,not for tenure.A Snowflake developer who is able to create state-of-the-art cloud-based analytics solutions is much rarer than a Java developer with the same tenure.Still,many companies would pay either of them the same wage if they had the same
65、 number of years as developers under their belts.Leading ER&D companies are starting to classify employees skills depending on whether they are more mainstream or premium.Those with more premium skills,such as fluency with Kafka(a framework used to store,read,and analyze streaming data),receive high
66、er salaries than those with more standard skills.Foster employee development.Entice employees by providing learning opportunities including international assignments and new skills training.Audi,for example,announced a training budget of 500 million in 2022 to instill new digital skills necessary fo
67、r the technical staff.Thousands of Audi employees every year take advantage of training in software development,data analytics,charging technology,and systems engineering.Amazon,on the other hand,offers employees self-directed online cloud-learning resources to earn additional credentials at no cost
68、.An attractive work environment also includes hybrid or flexible working models and programs to ensure emotional and psychological well-being.Make work meaningful.One way to keep work interesting for employees is to improve efficiency and automate low-value work.Another option is to assign new emplo
69、yees to projects that allow them to see the impact of their work quickly.Netflix,for instance,assigns new hires to key projects that are close to completion to ensure they quickly feel a sense of satisfaction for the achievement and become motivated.An attractive work environment also includes hybri
70、d or flexible working models(see Figure 1)and programs to ensure emotional and psychological well-being.In the wake of the Covid-19 pandemic,many employees consider such support a nonnegotiable benefit.Engage and inspire.Build ecosystems that connect employees to the companys mission and provide exp
71、osure to new ideas.One approach is to create different cultures within an existing company.For example,some auto companies have acquired software or tech companies to create a unit with a start-up culture and office design.Others,such as Siemens,are adopting a“tech hub”model,in 11Engineering and R&D
72、 Report 2023Notes:Question 1 to young engineering professionals asked,“What attributes are most important when considering switching to a new potential job?(rank up to 5)”;question 2 to engineering students asked,“Which attributes are currently most important to you when considering a job post-gradu
73、ation?(rank up to 5)”;sum of participants that ranked category in top 5 divided over maximum potential sample size;excluded“other”(8 responses)Source:Bain Young Engineering Professionals and Engineering Students survey(n=801)Number of survey responses by attribute(young engineering professionals and
74、 students)Monetary compensation(e.g.,fixed salary)367Dynamic ways of working(e.g.,working time flexibility)255Monetary benefits(e.g.,car policy)202Meaningful and interesting work198Employer reputation186Inspiring leadership180Diversity,equity,and inclusion180Transparency over careerpath and salary16
75、6Career progression166Environmental,social,andcorporate governance12263%34%29%35%44%32%31%31%29%21%Percentage share of top 5FinancialsWork environmentPersonal developmentEmployer attributesFigure 1:What matters most to young engineering professionals and students when choosing jobs?which the tech en
76、terprise has its own campus and has perks typically seen at tech companies.Siemens Lisbon tech hub,for instance,has a pool,a garden,game rooms,and gourmet food for employees.Others,such as Volkswagen,host open innovation challenges to gather ideas that could revolutionize the future of mobility.Tail
77、or jobs to what matters most.Identify the critical talent roles for the firm,and customize employment packages for each one.For instance,millennials and Gen Z are now already more than 40%of the workforce,and they have very different motivations than prior generations,according to a recent Bain surv
78、ey.Companies that understand the different needs of their employees also regularly measure employee satisfaction.Indian telecommunications firm Airtel and payments company Paytm,for instance,use software from inFeedo to identify employees at risk of quitting,predict burnout,and reengage the workforc
79、e.Tap into new talent pools.Company alumni may be particularly receptive to recruiting.In Bain surveys of young employees who have quit companies,more than 50%said they would be willing to return if they received a raise in salary,and 20%said they would consider returning if former employers signifi
80、cantly improved the work environment by offering flexible working time,for example,or programs to attract more diverse colleagues.12Engineering and R&D Report 2023100%Notes:Decision makers were asked,“Do you expect talent gaps in the below capabilities over the next three years?(single choice by cap
81、ability)”;results filtered foraerospace and defense;the formula for calculating talent gap percentage is first adding number of slight talent gaps together with the number of significant talentgaps and then dividing the sum by the total number of responsesSource:Bain Engineering and R&D survey 2022(
82、n=505)Percentage of survey respondents by capabilitySignificant talent gapsNo talent gaps Slight talent gapsTalent gap 64%80%74%76%70%60%66%84%74%83%Data engineering/data analytics/artificial intelligenceCybersecurityInternet of Things and connectivityEmbedded software developmentCloud/infrastructur
83、eSystem engineeringManufacturing operations/automationProduct design andmechanical engineeringTesting/simulation/complianceApplication developmentFigure 2:The talent shortage is most acute in data engineering and analytics,cybersecurity,and the Internet of ThingsOutsourcing and offshore hiring can h
84、elp address shortages in digital engineering capabilities that are in highest demand,such as data engineering and analytics,cybersecurity,and the Internet of Things(IoT)(see Figure 2).Companies facing high attrition rates are already 2.2 times more prone to accelerate offshore hiring for engineering
85、 activities panies that have lower or decreasing attrition rates.Leading companies also seek out young talent through partnerships with universities.The collaboration could include funding financial scholarships,student innovation competitions,or training for high-priority candidates.Volkswagen,for
86、example,is considering financing programming schools in Mexico and Brazil to improve its access to software developers.Finally,gig workers can help fill talent gaps,especially in IT and digital engineering roles.Tech companies such as Google,Salesforce,and Meta regularly employ contingent workers th
87、at allow them to quickly grow or shrink the workforce.Service companies including Wipro,TCS,and Cyient also are starting to use gig workers.Wipro,for instance,acquired Topcoder,a company with an open global community of developers,data scientists,and programmers that sells the communitys services to
88、 business clients.Chief technology officers of global engineering and R&D firms face a long-term battle for talent.Leaders are making gains by rethinking compensation packages,career paths,and the work environment.Above all,innovators are taking a lesson from other industries and mining new sources
89、of talent.1313Engineering and R&D:The Path to New Sources of ValueLeaders are using engineering and R&D to reimagine the business around customer outcomes and experiences.By Daniel Suter,Peter Hanbury,Caitlin Sweeney,and Shintaro OkunoAt a Glance Artificial intelligence,machine learning,and other te
90、chnologies allow companies to embed novel features in their products and enhance the customer experience.Engineering-heavy companies are also developing new sources of value by improving environmental,social,and corporate governance outcomes.Top engineering and research organizations build an ecosys
91、tem of partners to fuel innovation.At global medtech giant Stryker,the leadership teams quest for new sources of value creation is transforming the business.Once focused mainly on medical products,the company has moved over the past decade into preoperative surgical planning,digital physician adviso
92、ry,robotic surgery,and wearable devices to track rehabilitation.Digital sensors harvest data at each step in the patient journey to continually improve Strykers products and ensure the best medical outcome.Companies like Stryker are leading a vital shift in the way they wield technology and innovati
93、on in engineering and R&D(ER&D)as a source of value creation and competitive advantage.Historically,companies have viewed ER&D as a core function,but their primary focus was on making products better and cheaper.Today,an emerging group of leaders are investing in it as a strategic capability.14Engin
94、eering and R&D Report 2023These companies put ER&D and new technologies at the center of their businesses and wield them in bold new ways to innovate and reinvent business models.Instead of concentrating largely on improving products,they are moving into outcome-based solutions that allow customers
95、to pay based on negotiated results,such as machine uptime.How does this work on the ground?CTOs and ER&D teams are developing software,hardware,and services to improve customer outcomes and experiences(see Figure 1).For example,instead of selling a hip implant,Strykers ambition is to ensure successf
96、ul hip implant surgery and rapid recovery.To reimagine the business around the concept of customer outcomes and experiences,leadership teams are accelerating their investments in several key areas.First,companies are embedding novel features in their products based on artificial intelligence,machine
97、 learning,cloud connectivity,and edge computing,which is a form of computing done on-site or near the source of the data,minimizing the need for remote data processing.Such features can transform unconnected products into smart devices.A second area of investment to enhance customer experience invol
98、ves designing products for continual upgrades and new services.Digital technologies allow companies to send upgrades via software or over the air.The aim is to delight customers with new experiences and produce an ongoing stream of revenue as opposed to a one-time product sale.Companies are also cre
99、ating new sources of value by improving environmental,social,and corporate governance(ESG)outcomes.Many are investing in new technologies to lower the firms carbon footprint and reduce the carbon emissions of their products.Leaders are designing goods for a circular economy by reusing materials,recy
100、cling,and remanufacturing products to extend their life.Circular design involves the use of modular components that are easy to replace or upgrade,enabling a longer life span.Remote monitoring technology can help firms better understand the value of a device in the field and its potential for refurb
101、ishment.CTOs leading the race to find new sources of value creation are investing in all of these areas,often in combination.For example,Google Nest tapped artificial intelligence and machine learning to add innovative new features to standard thermostats.The result was a smart thermostat supported
102、by cloud-enabled services that can learn a customers schedule and program itself to save energy.The innovation transformed the customer experience and forged a new market segment.Smart thermostats are expected to capture 18%of the thermostat market by 2028.The risk of technology-based disruption add
103、s urgency to the search for new sources of value creation.Companies in ER&D-heavy industries that do not invest and innovate to improve the customer experience may find themselves rapidly sidelined by nimble rivals.15Engineering and R&D Report 2023Sources:CTO discussions;Bain analysisValue addMaturi
104、tyProduct focusedDigitally supportedOutcome basedAutomotive and mobility Autonomous drivingMedical devicesPersonalization of medical products(e.g.,3D-printed hip joint)TelecommunicationsOptimized network management and data-driven services(e.g.,traffic forecasting)Aerospace and defense Advanced rout
105、e and fuel optimizationAdvanced manufacturing and services Remote equipment monitoringBenchmarks at this stageAutomotive and mobility Better and more economical carsMedical devicesEquipment for medical procedures(e.g.,hip joint replacement)TelecommunicationsFaster communication infrastructureAerospa
106、ce and defenseHigher-performing and safer aircraftAdvanced manufacturing and services Equipment and servicesAutomotive and mobility Robo taxisMedical devicesEnd-to-end patient outcomes throughout diagnostics,surgery,and rehabilitationTelecommunicationsNew business models(e.g.,vehicle monitoring)Aero
107、space and defenseAircraft as a serviceAdvanced manufacturing and services Machinery as a servicebased on outputProduct focusedDigitally supportedOutcome basedFigure 1:Strategic value creation in engineering is transitioning toward outcome-based solutions16Engineering and R&D Report 2023From product
108、to serviceThe path to new sources of value creation differs by industry,but many first movers are reimagining their products as a service.Until recently,for example,automakers viewed their core business as producing vehicles.Now,many define their business as providing mobility.These leaders expect s
109、ervices to become a significant share of their business as they expand into new areas of mobility,including self-driving taxis,connectivity,and features that make driving easier,more pleasurable,and more productive.Volkswagen,for example,sells electric vehicles(EVs),but also provides a charging serv
110、ice on multiple continents with one convenient wireless identification card.To ensure a seamless customer experience,it has teamed up with infrastructure providers to develop a simple and standard process that allows drivers to charge their cars at locations across the US,Europe,and China.In aerospa
111、ce,companies that once focused on selling planes increasingly are developing products and digital services that enhance the customer experience prior to the flight,in the air,and after landing.For example,Airbus and German authorities recently launched a research initiative on urban air mobility tha
112、t will explore electric vehicle takeoff and landing for trips within cities and from one city to another.Machinery companies are undergoing a similar shift.Instead of selling equipment with traditional service contracts,leaders are offering solutions that generate greater value for their clients.Suc
113、h contracts may guarantee machine uptime,output rates,or other productivity metrics.Switzerland-based construction power tool company Hilti is expanding from hardware into construction software to improve construction productivity.It recently acquired Silicon Valley construction management software
114、company Fieldwire,which is improving productivity on construction sites by optimizing coordination among owners,general contractors,architects,engineers,and other subcontractors.Some companies and industries are further down the path than others in developing new sources of value based on enhanced c
115、ustomer experience.One early lesson:Success requires cross-functional collaboration.Leaders start by identifying the customer need.Next,the salesforce designs a proposition and pricing model.That ensures ER&D teams will create the right product.Outcome-focused engineeringWhat sounds easy in theory i
116、s extremely challenging in practice.Companies that take broader responsibility for outcomes need to deploy digital technologies that can dramatically reduce error rates and variable results.Take the case of self-driving cars or planes.To make autonomous vehicles safe,ER&D organizations must use fund
117、amentally different technologies and develop new capabilities.Outcome-focused engineering requires big data and analytics capabilities,control over multiple value chain steps,and human-centric and personalized product design.How are leading ER&D organizations supporting the transition to new busines
118、s models?One important step is building a digital twin,or a virtual model of products out in the field.A digital twin can,for example,alert engineers to problems before they occur,chart energy use,and improve productivity.In designing a product,digital twins can be used to run simulations that help
119、catch errors before the product trial phase,reducing time to market.17Engineering and R&D Report 2023Notes:The share of top 5 is the sum of participants who ranked category in top 5 divided by maximum potential sample size;excludes“other”(6 responses)Source:Bain Engineering and R&D survey 2022(n=505
120、)Which of the following engineering and R&D priorities are most critical for your company?(rank up to 5)Number of survey responses by priorityShortentime to marketRank 1Rank 2Rank 3Rank 4Rank 5368Incorporate novel tech(e.g.,AI)354Deal withcost pressure315Increase environmentalsustainability300294Be
121、recognized for innovationand thought leadership286195Increase socialresponsibility169Deliver fromoffshore locations125Cope withtalent scarcityDeploy noveldevelopment methodologiesFigure 2:Top priorities in engineering and R&D are shortening the time to market and incorporating novel technologiesAnot
122、her vital step is building a talent pipeline for the necessary engineering and IT capabilities,including data science,including data science,Internet of Things(IoT),and cybersecurity expertise.Leaders also are expanding the engineering teams scope of activity across the product life cycle.Nearly thr
123、ee-quarters of CTOs say shortening time to market is a top priority for engineering departments,while 70%say incorporating novel technologies into products and services is a key priority(see Figure 2).Organizational changeSuccessful CTOs have understood that redesigning the ER&D organization is crit
124、ical to focusing more effectively on customer experience and outcomes.That means expanding the engineering teams scope of activity,modernizing the operating model,processes,and workflows,and developing an effective human capital strategy and culture(see Figure 3).One important organizational change
125、is the need for interdisciplinary teams that provide access to strategic assets such as technology expertise to all departments.For example,a European leader in building technologies has bundled its embedded software and hardware capabilities in a cross-functional team.That team now provides differe
126、nt internal units throughout the organization with a modular set of software and hardware building blocks that they can use to build products.A second major organizational difference is the shift from cyclical product development toward continuous technology development.In the long run,an Agile appr
127、oach shortens time to market 18Engineering and R&D Report 2023and reduces unit costs.Software development leaders such as Amazon and Netflix highlight the power of continuous development by using software code to upgrade their products thousands of times a day.Cross-disciplinary teams are key to con
128、tinuous development as they are more likely to develop efficient solutions.Instead of having different departments create electronic control units for various functions in a car,for instance,one cross-functional team can use its combined expertise to consolidate the customer experience functions in
129、fewer chips.Leading ER&D organizations also embrace open engineering.They build an ecosystem of partners to fuel innovation and broaden their capabilities.Siemens and Qualcomm Technologies,for instance,joined forces to develop 5G-enabled smart building networks.The goal of the building automation pa
130、rtnership is to improve energy efficiency,reduce the cost of building ownership,and enhance security.To free up engineering talent for more critical tasks,top CTOs are investing in automation,technology,and artificial intelligence.That approach also increases engineering efficiency,generating cost s
131、avings to invest in upskilling and hiring.In the coming decade,ER&D teams will be critical sources of competitive advantage.They will improve existing products,unearth new sources of value creation,and lay the foundation for entirely new business models.Leaders know that developing new sources of va
132、lue takes time.Those that start down that path today will be best positioned to compete in a new era.Note:Excludes“other”(9 responses)Source:Bain Engineering and R&D survey 2022(n=505)What approaches will contribute most to value creation in engineering and R&D over the next 10 years?(rank up to 3)T
133、op 5 approaches by industry100%Investment intechnology(e.g.,digital twin)Agile productdevelopment Cross-functional development Close collaborationwith ecosystempartnersExpanding teamsscope acrossproduct/solutionlife cycle249Automotiveand mobility198Aerospace and defenseClosecollaboration withcommerc
134、ial teams 174Energy andnatural resourcesClose collaborationwith academicinstitutions 160TelecommunicationsDecoupling ofsoftware andhardware 148Medical devicesAcademiccollaborationCommercialcollaboration94Advanced manufacturing and servicesFigure 3:Leading companies are expanding the scope of enginee
135、ring teams activity1919The Digital Shift Fuels Outsourcing in Engineering and R&DSoaring demand for digital capabilities has research-dependent firms rethinking what needs to be done in-house and onshore.By Daniel Suter,Sudheer Narayan,Neil Malik,and Bhanu SinghAt a Glance Bain research shows 60%of
136、engineering executives plan to increase outsourcing over the next three years.In a strategic shift,companies are outsourcing a wider scope of activities,including full programs,instead of augmenting staff.The most important factor in choosing an outsourcing partner is expertise,not cost,Bain survey
137、results show.As engineering and R&D(ER&D)organizations seek to innovate faster amid a talent shortage,many are opting to outsource and offshore an unprecedented proportion of work once done in-house.Leading companies are using outsourcing to overtake rivals in the innovation race by boosting value c
138、reation and accelerating time to market.Flexible labor pools help them respond faster to surges in demand,access missing capabilities,and free up in-house talent for more complex projects.Signaling a strategic shift,60%of companies plan to increase ER&D outsourcing over the next three years,accordin
139、g to a recent Bain survey of more than 500 senior engineering executives(see Figure 1).Similarly,60%of respondents said they plan to shift work offshore or nearshore in the same period.Historically,large engineering or research-dependent companies have outsourced about 18%of ER&D 20Engineering and R
140、&D Report 202350Source:Bain Engineering and R&D survey 2022(n=505)Expected change in companies share of outsourced engineering and R&D activities over the next 3 yearsPercentage of survey respondents100%Overall441Asia-Pacific86Americas164Europe,the Middle East,and Africa191112Automotiveand mobility8
141、3Medicaldevices44Energy andnatural resources7280TelecommunicationsAdvancedmanufacturingand servicesAerospaceand defenseSignificant decreaseSlight decreaseNo changeSlight increaseSignificant increaseFigure 1:More than 60%of senior executives expect to increase the engineering and R&D activities they
142、outsourcework by value.That level is far lower than that in the IT services sector,which went through a similar transformation in the 2000s and now outsources 46%of activities.The level of offshoring and near-shoring in ER&D is also significantly lower than it is in IT services.What work does ER&D i
143、nclude?For our study,we define it as activities aimed at developing new products and services and improving existing ones.Traditionally,ER&D includes early foundational research,design testing and verification of products,infrastructure(for example,a manufacturing plant),and post-production support.
144、An emerging group of leaders are also investing in ER&D as a strategic capability that can support innovation and reinvent business models.As part of that approach,many are reconfiguring their products as outcome-based services and solutions that allow customers to pay based on negotiated results,su
145、ch as machine uptime.In addition to accelerating innovation,outsourcing and offshoring also help leadership teams address chronic talent shortages and mounting cost pressure.More than 80%of the senior executives we surveyed report talent gaps in areas requiring digital expertise,including data engin
146、eering,data analytics,artificial intelligence,cybersecurity,the Internet of Things(IoT),and connectivity,but also in other crucial areas such as systems engineering.Underscoring that trend,73%of respondents said industry or technology expertise is the most important factor in selecting an outsourcin
147、g partner.That compares with 59%of respondents who cited cost as the No.1 factor(see Figure 2).21Engineering and R&D Report 2023Notes:The share of top 3 is the sum of participants that ranked category in top 3 divided over maximum potential sample size;excluded“other”(14 responses)Source:Bain Engine
148、ering and R&D survey 2022(n=505)Top 3 criteria for selecting an engineering and R&D outsourcing providerNumber of survey responses by criteriaSpecific industryexpertise 325Strongest costadvantage 261Technology expertise(industry agnostic)257StrongestIP/thoughtleadership181Personalconnection tooutsou
149、rcing provider135Most reputablebrand name10458%73%59%23%30%41%Share of Top 3Rank 1Rank 2Rank 3Figure 2:Industry expertise is the most important factor for engineering and R&D executives when choosing an outsourcing providerDigital engineeringER&D outsourcing is growing in all areas of expertise cove
150、red by the survey,and the type of outsourced work is changing.Companies are also seeking new capabilities from service providers.In the past,demand focused primarily on mechanical and core engineering skills.Today,executives plan to invest significantly in digital engineering capabilities,particular
151、ly cybersecurity,IoT,cloud,embedded software,and data engineering and analytics(see Figure 3).Software talent gaps fuel offshoring because global markets have deep pools of digital talent and software is easy to develop and deliver from remote locations.At the same time,companies are outsourcing leg
152、acy disciplines that are often less strategically relevant for original equipment manufacturers(OEMs).Many service providers have significantly optimized legacy operations such as mechanical engineering,testing,simulation,and compliance.The use of ER&D service providers varies by industry.Our resear
153、ch shows the sectors most inclined to increase outsourcing over the next three years are advanced manufacturing and services,automotive and mobility,medical devices,energy and natural resources,and aerospace and defense.22Engineering and R&D Report 2023Source:Bain Engineering and R&D survey 2022(n=5
154、05)Expected change in share of outsourced engineering and R&D activities over the next 3 yearsPercentage of survey respondents by capabilityLargely digitalengineering(19%20222026 compound annualgrowth rate)Largely coreengineering(2%20222026 compound annualgrowth rate)100%Application developmentTesti
155、ng/simulation/complianceCybersecurityInternet of Thingsand connectivityCloud/infrastructureData engineering/data analytics/artificial intelligenceEmbedded softwaredevelopmentManufacturing operations/automationSystem engineeringProduct design andmechanical engineeringSignificantdecreaseSlight decreas
156、eNo changeSlightincreaseSignificant increaseFigure 3:Engineering and R&D leaders anticipate the sharpest outsourcing growth in cybersecurity,Internet of Things,and cloud activitiesFinally,the types of projects are changing.Historically,large research organizations have mainly outsourced activities l
157、ike testing,validation,and compliance while keeping core systems and products in-house.Now,the same companies are outsourcing a wider scope of activities,such as the end-to-end design of products or the development of key components such as combustion engines,traditionally a vital capability of auto
158、motive OEMs.While combustion engines still represent a large commercial market,OEMs are shifting their ER&D resources to next-generation electric power trains and new areas such as software-defined vehiclesincluding self-driving and connected carsthat can continually be upgraded.Many OEMs and Tier 1
159、 suppliers are looking for partners to increase their software engineering capabilities.Risk sharingAt the same time,ER&D-focused companies want outsourcers to take on more responsibility.Of companies already outsourcing,60%of respondents said that they are increasingly switching from traditional st
160、aff augmentation(“body leasing”)to engagement models,in which service providers assume a larger role managing the project and share risk.Engagement contracts may include full work packages or products such as the complete development of a smart watch.23Engineering and R&D Report 2023In a similar mov
161、e,Rolls-Royce Holdings shifted part of the civil aerospace engineering work from its Bengaluru,India,operations to Infosys,which will provide high-end engineering and R&D services integrated with advanced digital capabilities.By outsourcing that work,Rolls-Royce aims to benefit from an influx of new
162、 capabilities while reducing its costs.In practice,the engagement model varies in scope.In more hardware-dominated engineering areas,upstream processes for engineering and R&D services,such as concept design and architecture,require a smaller staff but greater expertise and closer proximity to the c
163、lient.Downstream processes,including detailed engineering and testing,require a larger staff but slightly less expertise,and the outsourcer does not need to be close to client sites.As companies adjusted working practices in response to Covid-19,many in-house teams began challenging the notion that
164、service providers need to be in close proximity,increasing the opportunities for outsourcing.Getting resultsEngineering outsourcing and offshoring,once tactical solutions,are now strategic moves that help companies respond to innovation and cost pressures.Executives at leading ER&D-focused organizat
165、ions follow a few important strategies to get the best results from outsourcing and offshoring:Dare to outsource.Make a courageous decision about the activities that are not core to innovation and differentiation.Evaluate where the speed of closing capability gaps outweighs the importance of doing t
166、he work in-house.BMW,for instance,outsourced its next-generation charging electronics program to KPIT,a service provider specializing in vehicle electrification engineering and software.While the hardware and software that manage the battery and its use are core elements of the electric power train,
167、outsourcing them can help BMW accelerate time to market.For companies lacking in-house capabilities,outsourcing components and modules can shorten development times by more than half.Build an ecosystem of partners.Select three to five service providers with a strong partnership approach.Supplement t
168、his core group with smaller specialists in areas that require niche expertise.Reducing the total number of service providers helps both parties build higher-quality relationships.That,in turn,leads to greater efficiency and better pricing.It also opens the door to outsourcing larger projects.Increas
169、e use of attractive outsourcing models.Companies that outsource entire engineering work packages,which include deliverables such as data,drawings,and models,often find that approach to be more economical than augmenting staff.For example,in workloads like technical documentation and aftermarket supp
170、ort,the dominant commercial model is based on the unit of work(fee per document,depending on complexity),as opposed to the number of engineers deployed.Outsourcing entire packages gives business leaders more predictable costs and allows service providers to deliver the benefits of standardization,au
171、tomation,and an integrated global delivery model.24Engineering and R&D Report 2023Coinvest with service providers for the long term.Jointly identify new outsourcing locations,both onshore or offshore,including centers of excellence.Investing together can help attract talent and rapidly build new cap
172、abilities.Coinvesting requires senior managers to commit to a strategic relationship.Leading companies ensure their teams have on-the-ground knowledge of local regulations,talent,logistics,and cultural issues.A good service partner can accelerate results and provide greater certainty of outcomes.One
173、 global tech service provider established a hub for Airbus in Bengaluru to support a platform-based approach in product development.That move gave Airbus access to new talent pools and reduced its costs.A good service partner can accelerate results and provide greater certainty of outcomes.For engin
174、eering and R&D service providers,the strategic shift toward outsourcing will provide huge opportunities in the coming decade.Leaders are likely to see annual revenue growth of 20%to 25%a year.However,meeting that surge in demand poses challenges.The emerging leaders have differentiated domain expert
175、ise,leading-edge engineering processes,and attractive employee value propositions.They also focus on a few strategic imperatives:Become a talent magnet.Make employee experience a top priority.In a supply-constrained market,firms with the best track record in hiring and retaining talent have a signif
176、icant advantage.Leaders ensure compensation packages reward those with scarce skills rather than just rewarding them based on tenure.They also create a flexible working environment and provide career path transparency and global mobility,which are increasingly important factors for young professiona
177、ls.Combine digital and domain expertise.Many firms offer generic digital services today,but few can combine sector-specific engineering domain and digital expertise.Our research shows that out of a companys total spending on digital engineering,more than 50%requires knowledge particular to an indust
178、ry domain.For example,engineers need knowledge of aerospace engines to help build digital twins of those engines.Develop a scalable operating model.Winning firms punch above their weight by combining cost and capability advantages.This requires large-scale offshore locations,an ecosystem of partners
179、(e.g.,semiconductor integrated device manufacturers,open-source consortia,and cloud service hyperscalers),and the ability to sell and deliver global projects.Engineering services firms that are still predominantly focusing on staff augmentation will need to build capabilities in project management,c
180、ontinuous performance improvement,and new pricing models.Bold ideas.Bold teams.Extraordinary results.Bain&Company is a global consultancy that helps the worlds most ambitious change makers define the future.Across 65 cities in 40 countries,we work alongside our clients as one team with a shared ambi
181、tion to achieve extraordinary results,outperform the competition,and redefine industries.We complement our tailored,integrated expertise with a vibrant ecosystem of digital innovators to deliver better,faster,and more enduring outcomes.Our 10-year commitment to invest more than$1 billion in pro bono
182、 services brings our talent,expertise,and insight to organizations tackling todays urgent challenges in education,racial equity,social justice,economic development,and the environment.Since our founding in 1973,we have measured our success by the success of our clients,and we proudly maintain the highest level of client advocacy in the industry.For more information,visit