According to a recent survey conducted by Bain, as engineering and R&D organizations look to innovate more quickly amid a talent shortage, many are opting to outsource and offshore a higher proportion of work that was once done in-house.
More than 60% of the senior engineering executives surveyed plan to increase their outsourcing of engineering and R&D activities over the next three years, while 60% 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 work by value. That level is far lower than that in the IT services sector, which outsources 46% of activities.
The level of offshoring and nearshoring in ER&D is also significantly lower than it is in IT services. Outsourcing and offshoring also help leadership teams address chronic talent shortages and cost pressures.
The 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, such as machine uptime.
ER&D outsourcing is growing in all areas of expertise covered 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, particularly cybersecurity, IoT, cloud, embedded software, and data engineering and analytics.
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