The Digital Takeover – How Asset Heavy Industries Are Upgrading to Digital

Pari Natarajan: Hello and welcome to an all-new episode of the Zinnov podcast Businesses Resilience Series. I’m Pari Natarajan, CEO of Zinnov and I’ll be your host today. The last two years the Enterprise Digital Transformation has accelerated. More and more enterprises have realized that that existing customer connect and retention of those customers is very critical.

So they are looking at how do I move my customers into a recurring stream of revenue? How do I keep in touch with customers on a regular basis? How do I continue to update my products? And this is not just enterprise software company. These are even industrial companies thinking like a SaaS company.

And this was there before the pandemic, but these trends have clearly accelerated over the last few years. And you can see that in the overall engineering span, when we do the engineering spend analysis, you can see the overall digital engineering spend growing much faster for industrial companies compared to the legacy engineering spend.

To shed light on some of these aspects and how service companies are increasingly becoming strategic partners for enterprises, we have with us, Hari Sadarahalli, Corporate Vice President, Engineering and R&D Services at HCL. With more than 30 years of global experience across different business and technical functions, Hari currently heads the manufacturing, medical, and transportation organization within HCL where he oversees both global sales as well as delivery.

Welcome Hari to the Zinnov podcast Businesses Resilience Series. It’s great to have you with us.

Hari Sadarahalli: Thanks Pari. Thanks for having me here.

Pari Natarajan: Let’s get right into it then. So, according to our latest R&D report, in spite of the pandemic, the overall engineering span actually went up, but the legacy engineering where companies are working on mechanical, embedded has been flat versus the spend on digital engineering which is more modern tech software has increased significantly on our projection to 2025, we’re going to see very similar trend where there’s an acceleration of our software spend.

Hari, you’ve been managing asset heavy industries within HCL engineering and R&D services. Given this increase in spending, how do you see the digital influence across the asset heavy industry? Is it a different from the high tech industry HCL as well?

Hari Sadarahalli: Great question. First of all, start begin with that question. Um, at the areas in which I manage, which I run, which is asset heavy industries, is very different compared to the so-called high-tech industries where a lot of digital spend is happening. When I put them together as an overall engineering, you will see the spend pattern in a slightly different way.

But when you look at asset heavy industries, you are absolutely correct in terms of the digital spend is significantly increasing compared to the legacy spends. It’s more of a necessity for the asset heavy industries to survive and be relevant into the future.

But having said that each of the asset heavy industries have their own challenges, because they are not into the only digital spend. They don’t have to survive with that legacy spend, legacy engineering. They have to work with their existing product, the future product, there is the continued engineering spend has to happen. But I think, what I’ve seen in most cases, many of our customers balancing the spend between the digital and conventional engineering. But if you see the rate of growth, maybe you will see digital higher than the legacy, but they do spend a significant amount of engineering spend than the legacy.

Pari Natarajan: What are the use cases, Hari, you see asset heavy industries spending on digital technologies?

Hari Sadarahalli: Broadly I’m seeing, Pari, is the two areas our customer spend in the digital. One is the, what I call the product-centric. And one what I call process-centric. Typically product-centric to make the product get the more user experiences, to get more efficiencies, more productivity of doing, and the process-centric, obviously the biggest spend I see is in the areas of the industry 4.0 are quote unquote digital manufacturing. In the both the spends of the process-centric as well as product-centric, we see significant areas of the money being spent at the digital dollars being spent today.

Pari Natarajan: And you work across manufacturing, medical, and other industries. How is it different in terms of product, process centric view. Is it different for each of those industry when you talk to customers?

Hari Sadarahalli: By and large all asset heavy industries, each of the industry – at least the industry that I run, traditional industrial manufacturing companies and med devices companies or automotive or aerospace businesses, if we really look at it is, need of each of the industry is slightly different, especially if I go back and take healthcare industries. Today the bulk of the spend is happening in the digital health are giving them the… either the provider space or the… care-giver spaces… and all the products currently they’re looking at is to become very easily accessible, put the data analytics on top of that, gets connected and all that stuff which is happening around that.

Whether it could be in the diagnostic areas, or med devices areas. If I come to the automotive world, obviously today the biggest trend is one is in the autonomous areas or the electrification areas, the need is to become more and more relevant in the current… and they’re also looking at the lot of manufacturing guys spending in the becoming th sustainability areas on the areas they would spend.

So each of this industry has slightly different spend pattern obviously in the manufacturing and the auto and the traditional asset heavy industries, significant spend I’m seeing in the areas of the digital manufacturing or industry 4.0. This is very different maybe from the compared to the asset light industries.

Pari Natarajan: Got it. Actually, it seems like each industry has a different view, like automotive focusing on EV and medical more on diagnostics. And if you look at… sustainability seems to be a theme across as well. I mean, digital is one of the most overused terms in the technology ecosystem, but if you take a few of your offering portfolio to customers, what do you define as digital engineering?

Hari Sadarahalli: So what we have done, Pari, especially digital is all pervasive. And I’m trying to define that specific to engineering world versus because a lot of enterprise digital happens in the areas of that spend make come from the different buyers, the enterprise, the digital. Specifically to the engineering world or the technology world, I have defined the digital spend in three major buckets. One is of course product centric, which is the connected product, making product more smarter or connected, do the data analytics around and all that stuff, taking the product to the cloud and many of the customers are moving the product as a service.

So obviously they have to really look at the that I call as the connected product and service. That one big spend happens there. Second spend on the digital is the… which I talked about as a process-centric, which is essentially driven by Industry 4.0. The connected factories or the connected digital manufacturing what we’ve talked about, both on a legacy side of the spend on the connected factories as well as – which is typically MES, MOM type of activities with the digital thread, digital twin… In a factory environment is also becoming a significant spend. That’s the second tower, third tower I talked about engineer infrastructure required to do all the digital transformation, it could be a bedrock, core PLM services or the services which you need engineering infrastructure which is required, cloud infrastructure which is required to transform the digital spend. So all put together, I call them connected design.

One way is connected design from the bedrock platform side effect, connected manufacturing on the connected product and platform. If it put all of them together, which will differentiate from the enterprise digital spend, which happens which is the core engineering side today if you talk about any of the engineering heads and probably broadly I can split them into three buckets and that’s where I would see the growth happening in all the three spaces.

Pari Natarajan: Got it. Got it. What are the challenges for lot of the asset heavy industry? The culture, the DNA has been more hardware, physical products, the leadership in these companies come from that background, the core engineering teams come from that background. But I think about digital, are they able to transition into some of these modern technology? What are some of the challenges faced by your customers in this transition. And how are you helping them?

Hari Sadarahalli: Especially in asset heavy industries, they’re not a born digital, obviously culturally they’re a product, physical product heavy industries.

They have to do very, very delicate balance, in terms of the digital versus core of the product engineering space. Most of our customers are today, one of the biggest challenge they faces in terms of the market reach to make the business more efficient, productive, make it financially the stronger… So while the managing the cost side of it, they manage the cost structure because the global inflations, global geopolitical situation is impacting them. Supply chain is one part of it. On the other hand where their customers are looking at it, the more and more technologies savvy product to be there and hence the digital has to be connected for them.

So they have to do a balancing act there to do it between the digital spend versus the conventional product spend. When they do this one, and they have to definitely look at how do I monetize my digital spend. And who is going to pay for that digital spend, but it has become necessity for them, they have to spend, but how to make it monetize the digital spend.

In this process what HCL has been doing is… what we are currently doing is to, help them readjust the balances… budgets in a way between digital versus this. In some areas, customers are looking at insourcing some of the digital spend some areas where things we can, they can outsource it. So, what we are doing is we are working very, very closely with the customers, what is core versus context?

Maybe some part of it in the past was what are the core they could be in context which could be outsourced. Some part of the digital may become very insourcing part of it. So when it based on the customer strategy of insourcing and outsourcing and we are working very, very closely with customers readjust their budgets and HCL is playing a role of consultative role in terms of the managing the entire budget that makes the business objectives are met.

Pari Natarajan: Yeah, it’s interesting. You are able to, kind of readjust the engineering talent architecture of your customers in a way that they’re able to act very quickly on the digital area, but also not kind of let go of the legacy engineering and you kind of maintain that for them in certain areas. What’s in certain areas, you’re building some of the new core for these companies. It looks like you’ve successfully moved your organization from an engineering outsourcing vendor to an engineering transformation partner to your customer. And in this transition, one of the key aspects is having a very strong consulting capability frontend to be able to educate and advise customers in this transformation. How are you driving that, that is also a reskilling for your team that is close to customer, right?

Hari Sadarahalli: Again Pari, this is a very important aspect of a digital transformation. What we have done, obviously in a typical service industries is the… sales and delivery are two organizations which drives the business. They go and sell and somebody come and deliver that. What we have created is a digital transformation organization, which is the overlaying organizations, which is a very consultative led and we have… a lot of people have been hired into that from the industry, as well as the people from our digital team. As we put together as a strong team has been put with a consultative mind, solutioning mind, they will help our customers off of bringing the… what is the multiple layer of consulting, correct? The technology layer of consulting, domain layer of consulting, process layer of consulting, business layer of the consulting. So we help our customer do transition through from their classical engineering to the digital areas. So we have made a lot of significant investment of building that layer of talent which is the, it could be consulting layer. Many of them come from the core product engineering, come from the manufacturing background, come from the digital background. It is a pool of people which is available and I called it the digital transformation team, which will help and part of the, our not only our sales process, they’ll also help and sit on other side and then the part of my customer side to recraft the needs and eventually what we’ll do it is, all our customer’s business problem through technology layer, digital layer. So we are in the process of solving customer’s business problems through engineering and technology or digital layer. So we have created a new layer of team which enables them and support our customers in transformation.

Pari Natarajan: Great. Thanks, Hari. It’s very interesting how asset heavy industries are adopting digital technology for various aspects of the business, both product as well as process centric and your own transformation of creating an organization which can help, as you say, the classical engineering organization as well as digital engineering organization based on where the customer needs are and also having a very strong focus around transformation where your teams are able to sit alongside with customers, draft the roadmap for the transformation, and not just provide them the roadmap, but also help in executing the roadmap. The very strong, integrated sales and delivery organization. Excellent. Thanks for all the insights and creating an organization which is able to sit alongside with the customers and support them. I really enjoyed this conversation.

Hari Sadarahalli: Thank you. Thank you, Pari. Thank you for having me here.