Senior Vice President of Engineering and R&D Services of HCL, Sukamal Banerjee took some time to speak with IMPO about the demand of engineering and R&D services both domestically and abroad. Banerjee explains the in’s-and-outs of the factors driving demand, to changes in the industry and finally, the issue of skilled labor within engineering and R&D services.
Maura Falk: What do you think are some of the key factors driving stronger demand and growth for HCL’s engineering and R&D Divisions both domestically and abroad?
Sukamal Banerjee: Following the 2008 financial crisis, R&D intensity (i.e. the ratio of expenditures by a firm on research and development to the firm’s sales) for all the engineering and manufacturing companies have been running flat or declined. Therefore, all engineering organizations have been re-evaluating their R&D investments to improve returns. Most of our leading customers were struggling with stagnating revenues and single digit operating margins at the time of deal.
Global OEMs & technology companies today are differentiating through software and services. These companies are increasingly expanding from core products to services driven models. For example, Xeroxis expanding from multi-functional device manufacturing to Managed Print Services (MPS).Even for the world’s most innovative OEM, software and services contribute 10 percent revenues, and is the fastest growing segment. While faster technology migrations have become the order of the day, it is also essential to ensure sustained engineering and end of lifecycle product support. The partnership model for such needs are a natural and strategic choice for product companies. With enhanced service capabilities and high domain expertise, HCL has assisted in extending the product life and in process generated hundreds of millions in revenues for customers, which would have otherwise not happened without a focused ownership.
Also, the emerging convergence of digital and platform engineering is playing a significant role in the engineering and R&D services market. We focus on proactively creating solutions for top of the mind challenges faced by OEMs through our enhanced solutions capabilities and fast-track R&D transformation for legacy products. We have seen engineering and R&D services evolve and grow to a $900+ million business at HCL Technologies.
The key factors contributing to the growth of engineering and R&D outsourcing continue to be accelerated time to market, increased complexity driven by convergence, need for access to varied and scalable talent pool. HCL’s investments into the business line and developing proactive technology and process related innovations has helped us drive a disproportionate share of the market.
MF: Last year ISG reported that engineering services markets were moving abroad. Is this a trend that you have seen continue in your own firms? And is a wider global presence contributing to the increased demand for certain engineering services more than others?
SB: With the convergence of technologies, increased use of devices of varied form factors, electronic components and communication technologies, the engineering services market, like all other markets, is also hit by an accelerated need for innovation and execution. This has led close to the customer, closer to the product value chain execution. This has meant local presence is needed to work effectively with customers on such programs.
While there’s an expansion of the engineering services internationally, the US continues to be an important market. Emerging markets have evolved to become prominent players in the recent years and are likely to become increasingly dominant in the future. The European market is opening up and is expected to contribute significantly in the coming years. We also see the ESO spend shifting to emerging markets like India and other adjacent Asian markets.
According to IDC’s Engineering Services Buyer Study results (2013), global delivery presence contributes to about 17 percent of ESP selection. It is our ability to share risks and partner with the company that has been instrumental in the growth of the HCL Engineering and R&D Services division. We strive to co-create a conducive ecosystem for product development and also help in taking the products to the market with innovative business models like the risk & reward model and output-based model. We adopt a hybrid global delivery model based on the requirements and the nature of work involved. High-end and complex work which is more core to the customer is carried out in the onsite development centers, while context-based ground work and low-complexity services can be carried out at the offshore sites. We have seen an increase in joint innovation and development work carried out at our Onsite Delivery Centers to up to 25 percent in the recent past.
MF: Can you speak to some of the ways that outsourcing has changed the practices of engineering services for HCL Technologies as well as on a broader scale for the industry as a whole?
SB: The ER&D landscape is witnessing a transformation. We see the nature of work outsourced is moving from context to core. OEMs are increasingly expanding from core products to allied services with a focus on enhancing customer experience. The scope of engagement has largely moved from skill or capacity additions to more lifecycle centric solutions.Business models are moving towards higher - risk & reward, sharing investments and risks in co-managed scenarios. ISG has predicted one-third of ESO large engagements to be in a R&R model by 2020. The emerging role of engineering analytics (EA) is also changing the playing field in the ERS space. Apart from leveraging analytics and applying to different aspects of the product life cycle, personalization in consumer industries; predictive component failure in Aero; improving efficiency and safety in industrial are few EA applications.
The new disruptive technologies and technology adoptions like IoT, M2M, SMAC technologies etc. are impacting customers across industries, wherein the challenge is to deal with the varied perspectives of these technologies that exist in the market. Product companies are increasingly adopting these technologies not just for their existing product driven revenues but also to create new services for their customers and new sources of revenues. HCL has developed solution accelerators and continues to develop these accelerators in the form of packaged units. This is a clear indication of the expectations of the marketplace and the need to help ensure the customers have access to such investments in order to meet their market objectives.
The ER&D world is moving towards experience integration. We are constantly striving at integrating disruptive technologies into a seamless digital experience. Digital age applications need to be high performing, resilient, anytime and anywhere accessible. We need to engineer platforms delivering this need. We at HCL are trying to connect the dots of IoT through smart services by providing an IoT framework platform to drive standardization, which is the need of the hour in the IoT ecosystem. There is hence a clear expectation emerging of capabilities of complex systems engineering-led systems integration - something which aligns well with the deep embedded capabilities of HCL.
Tomorrow’s differentiation will be on experience and proactive engagement.
MF: Many different industries are being plagued with ‘skill gaps’ and a lack of skilled graduates. Is this something the engineering services sector has struggled with?
SB: The engineering services sector has been challenged to scale up the “skill maturity” in certain niche technology areas, instead of “skill gap.” Skill gap from ESO has been addressed reasonably well by “factory models” of learning and development on technical, functional and soft skills. Belying the word “factory,” this actually involves several innovative ways to engage with students in colleges till they are well into their 5th or even 10th year of employment.
The increasing reliance of ESO on areas like embedded systems, electrical systems and electronics, infotainment systems & mechanical engineering has been addressed well due to the education system maturing and diversifying into these streams as a concept of “early adopters”.
About five million employment opportunities have been estimated in ER&D and related fields by 2020. Skill requirements for engineering services and R&D are extremely high-end and need constant upgrades. As the technology landscape is moving very fast, we identify unique job roles and competencies on a regular basis and provide relevant trainings to ensure faster adoption of latest technologies.
So yes, it’s a challenge but something we work on actively to mitigate.
MF: Can you describe some ways that HCL Technology works to maintain a trained, skilled, and experienced workforce?
SB: Some of the Learning initiatives of HCL Technologies in the engineering services, which include experiential adult learning techniques:
- Ideapreneurship culture for critical thinking and ideas by each employee to add value to customer and business
- Technical and process skills development being classified for roles and aligned to the individual growth
- Process and product Life cycle certifications for the functional domains e.g.: Aero, auto, medical, etc.
- One key aspect has been expanding the base we can engage and a lot of work has gone into developing diversity for women and nationalities in the workforce through structured programs
- Domain competence for niche areas with industry SMEs as mentors and coaches
- Building leadership skills to engage different generations in the organization using learning as an enabler
- Communication and cultural competence to create a global virtual team of experts
- Engineering program management and architecture academies to develop global operations and technology management
- CoE (center of excellence) model for high-end technologies and niche areas, to benefit from a pooled resources environment
- Leverage best practices from adjacent verticals to create differentiators.