How Digital Culture is Transforming Product Development

Before the rise of disruptive technology, Engineering Service Providers (ESPs) simply offered tactical engineering support to Independent Software Vendors (ISVs) and Original Equipment Manufacturers (OEMs). But now Product Engineering Services (PES) are helping ISVs develop superior products at the intersection of technology advances and customer needs.

By Prashant Karnik

Today’s digital ecosystem is a new era of collaboration and partnership. The solo company is being replaced with a complex ecosystem of connected digital businesses, customers and devices. As noted in the Accenture Technology Vision 2016 Report, companies are collaborating with customers and partnering with rivals.

So it shouldn’t be surprising that Product Engineering, once a confidential internal Research and Development (R&D) activity, is now being outsourced. Before the rise of disruptive technology, Engineering Service Providers (ESPs) simply offered tactical engineering support to Independent Software Vendors (ISVs) and Original Equipment Manufacturers (OEMs). But now Product Engineering Services (PES) are helping ISVs develop superior products at the intersection of technology advances and customer needs. They’re also accelerating time to market to keep pace with digital speed.

Three years ago, companies were reluctant to extend their carefully guarded R&D process to an outside partner. In a 2013 US R&D Product Engineering Services Buyer Study by the IDC, the top barriers to outsourcing Product Engineering Services (PES) were a lack of control over product development, and the concern that products created by third- party vendors wouldn’t adhere to quality standards.

While software development and testing are obvious processes to outsource, R&D strategic planning, technology planning and intellectual property management are also strong candidates, particularly when you need an awareness of global competition and opportunities.

While these concerns still exist within some companies and industries, in the new digital ecosystem, industries and core competencies are changing. ISVs, like all companies, are adopting new business models. As technology product cycles mature, and global knowledge and resources become the key to success, ISVs are outsourcing PES and shifting their core competencies from product development to product management. They’re focusing on innovation, financing and deepening customer intelligence.

Outsourcing “non-core” processes for a competitive advantage is a key component of any successful business strategy. Traditionally, product development takes as much as 80 percent of management time, adding less than 20 percent in value. So it’s no wonder that companies outsourcing R&D to third parties is expected to grow from 64 percent to 75 percent, according to a recent survey by the Economic Intelligence Unit.

This new era of outsourced PES is being driven by the ever-changing product development world with shorter product cycles, faster shipping speed, unforeseen competition, mass standardization (and modular customization for multiple markets), shrinking R&D budgets, customer-driven experiences, disruptive technologies and the need for a global talent pool.

Today’s product development means constantly watching competitors on a global scale, spotting emerging technologies aimed at meeting customer needs, and acting on this information with rapid development.

Customer-driven experiences are leading innovation and this means taking an outside-in, rather than inside-out, approach to product development. Rather than focusing on internal ideation, companies are drawing innovation from customer ideation.

Given the complexities of disruptive technologies–smart products, mobility and analytics—a global network of engineers with comprehensive capabilities is the really the only option for ISVs and many manufacturing companies.

According to Gartner, more than half of major new business processes and systems will incorporate some element of the Internet of Things by 2020. ISVs are preparing for this challenge, which means redesigning every piece of software that supports these systems, through acquisitions and partnerships.

IT vendors are helping ISVs by offering services like software product engineering, platform engineering and mobility and cloud. In addition the introduction of DevOps environments is helping establish a culture where building, testing and releasing software can occur in a rapid and reliable fashion.

Industry leaders like IBM are establishing a new global ecosystem, launching 12 new digital ecosystems in cities across nine countries, and engaging with thousands of startups through entrepreneur initiatives.

Meanwhile, Microsoft has established its Global Independent Software Vendor (ISV) Partner Program, allowing smaller vendors to benefit from its network of more than 600,000 partner companies worldwide, creating support and business opportunities that might not otherwise be available.

In the new digital ecosystem, connection and partnership itself becomes a revenue builder. The GE Digital Alliance Program is bringing together ISVs, systems integrators, service and technology providers, and resellers to join them “in building the new digital industrial era.”

Meanwhile, outsourced PES are helping ISV’s speed time to market, reduce costs, ensure high-quality development based on the most advanced technologies, reach global markets and increase productivity.

As for the future of the new digital ecosystem, a 2015 Accenture survey of more than 2,000 IT and business executives found that four out of five respondents believe that in the future, industry boundaries will dramatically blur as platforms reshape industries into interconnected ecosystems. While 60 percent of those surveyed said they plan to engage new partners within their respective industries, 40 percent said they plan to leverage digital partners outside their industry. Meanwhile, 48 percent said they plan to engage digital technology platform leaders. Just one year later, that future has already arrived.

The author is SVP & GM, Hi-tech, Infogain