by Sidhant Rastogi, Managing Partner, Zinnov
2020 was the year of shock and awe. Shock when COVID-19 and the resultant crisis hit us initially, and awe at the resilience that the technology industry as a whole displayed during this period. In fact, the industry was thriving by the end of the year. As we drive into a new year, here are top trends that will be top of mind for CXOs from a Digital Engineering Services perspective.
1. Customers’ pivoting Product Strategy: Taking advantage of the COVID impact, customers are pivoting their product strategies. They are moving to either moonshots (eg: Airbus and Michelin focusing on Hydrogen Propulsion) or pivoting to working on new product lines (Rolls Royce working on smaller engines) or deviating from older product strategies (BMW creating an all-electric platform). All this creates newer but non-traditional opportunities for Service Providers (SPs). The services firms that are more agile to invest strongly in these new areas and develop more skin-in-the-game engagement models, will win greater wallet share within these product companies.
2. Lower Revenues from 2020 to Impact 2021 R&D Budgets of Customers: While customers pivot their product strategies, their R&D budgets are getting squeezed, owing to lower revenues from a recession-hit 2020. We have seen large outsourcing deals in Q4 of 2020 owing to this, and it is expected to accelerate further in the first 2 quarters of 2021. There is, however, no strong indication that such deals will continue with the same momentum and pace beyond the next 2-3 quarters.
3. GAFAM will not be just Software Companies: While the traditional ER&D spenders’ R&D budgets reduce, GAFAM (Google/Alphabet, Amazon, Facebook, Apple, Microsoft) increased their R&D spends at a rapid rate in 2020. They will double down on their strategy of creating vertically integrated conglomerates of tomorrow, as they work on their own chipsets, connectivity solutions, and hardware. Software just happens to be one of the activities they work on, as well. SPs will have to aggressively focus on GAFAM to service them in these newer market entries across hardware, embedded, semiconductor, digital manufacturing, etc.
4. Customers will expect End-to-end Product Ownership for Legacy Streams: As customers focus on newer products with lesser budgets, they will increasingly want Service Providers to take end-to-end ownership of their products and work streams. The SPs will need to onboard senior product management talent that can enable this, at their end as well.
5. Enterprises will now be more Open to Offshore Conversations: As the world has now become fundamentally comfortable with the idea of remote work, engineering will start to get decentralized from earlier hubs. Enterprises that once considered engineering to be sacrosanct to their HQ locations, will now be open to the possibilities of global locations.
6. Offshore to have a Multi-pronged Location Approach: As the war for talent goes global, just having one country as a primary talent pool becomes counterproductive. Every county has its own unique talent advantages to offer. For example, Poland has high quality connectivity talent, Romania has top-notch embedded skillsets, India offers strong back-end technical talent, Ukraine and Belarus offer good front-end development talent, and Costa Rica offers skilled Outsourced Software Product Development Talent. As Digital Transformation drives the strategic agendas of organizations, there needs to be a cohesive strategy to address the best-in-class talent available across these locations.
7. Attracting Talent will become Difficult: “On-site opportunities” will reduce for talent across the board, primarily driven by two reasons. The acceptance of remote work across industries, and regulatory pressures from western governments while they combat all-time high unemployment rates in their countries. SPs will find it difficult to land the best-in-class talent vis-à-vis the GCoEs, given the lack of this differentiator.
8. Reskilling/Re-Tooling Talent will be Critical to Set up for the Next Decade: Digital Transformation accelerated manifold in customer-facing industries, as buying and selling transitioned online. As this continues and becomes the new normal, the talent needs to be attuned to this reality, faster than initially expected. SPs investing in reskilling their own talent and their customers’ talent base will become a prerequisite for success in the next decade.
9. Leadership from large Service Providers will move: As more Service Provider firms carry out large scale restructuring exercises, the leadership will move across firms. The different geographies and varied ethos they bring will help create new multicultural leadership environments, that will end up transforming organizations. At the same time, this period of flux is likely to stabilize in Q2 2021.
10. M&A Activity will heat up: Deals were scuttled in 2020, owing to unsure valuations and revenue numbers. With access to cheap capital and a surer future, Private Equity players and strategic buyers will be doubling down on acquisitions of scaled as well as mid-sized assets.
It remains to be seen how CXOs will prioritize these through 2021, as digital transformation needs accelerate across verticals, companies will expect more from their SP partners, and the global digital talent war heats up.
For more in-depth analyses on what will be the Digital Engineering services priorities of CXOs in 2021, write to us at email@example.com.
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