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Opinion | Outsourcing of engineering services could spell big business

As the technology revolution enters another phase of transition, a new opportunity for IT firms is waiting to be explored

Changes in technology are like dark clouds that portend large shifts in employment this century, much like the industrial revolution did in the 1800s. After the initial shock of job displacement, the industrial revolution also caused an unprecedented and concurrent rise in the overall standard of living for many people, leaving them time to focus on work that was more “creative". While that is the current narrative, I doubt many creative workers in the 1880s would have agreed.

And now, as we stand on the brink of another tech-based revolution, most experts again agree that humanity’s holdout against technology will be human creativity in fields such as art and design, which require imagination. And, however “artificially intelligent" computers may be, they are bereft of imagination. On its own, even the smartest computer is little more than a mimic. To make computers work alongside human creativity is where the challenge lies.

Therein lies a silver lining for Indian IT services, in the form of outsourced engineering services. This field has vast untapped potential and many firms don’t bother with it since selling and delivering on it is long and messy. Nevertheless, some Indian IT service providers have been building out-engineering services practices to deliver on the creative process of product design and engineering. These units are usually hidden deep within the workings of IT behemoths, notably HCL Technologies, Tata Consultancy Services and Wipro, but in certain instances, they comprise pure-play firms such as Cyient, Global Logic, L&T Technology Services and Quest Global. Altran and EPAM from outside India complete this set of competitors.

It is not an easy task to convince engineering or manufacturing firms to outsource their engineering and design; these companies often rightly see their engineering design expertise as key to their enterprise. However, in a world where software design is becoming the bulk of the core-engineering process, keeping everything in-house leads to a longer cycle time from design to engineering to manufacture, causing product deployment delays in a ferocious market which is quick to gravitate to the latest products.

On the negative side, the failure of software embedded in the machinery we use or depend on can have very serious consequences. Boeing’s mishaps with its 737 Max aircraft are almost all certainly software related. Despite the firm’s (and the Federal Aviation Authority or FAA’s) reprehensible assertions that US pilots were better trained than their non-US counterparts because a 737 Max crash hadn’t (yet) occurred in the US, regulators worldwide quickly grounded the aircraft. The FAA’s reputation has been tarnished and Boeing has a public relations nightmare on its hands while it rejigs its engineering software for the aircraft.

Negative news catches eyeballs, and unfortunately, the hundreds of positive examples of engineering software successes are left unseen. I recently met Dr. Keshab Panda, chief executive of L&T Technology Services (LTTS), to better understand his view of this space. From the outset, Panda was clear that he faced stiff competition from both the embedded operations of larger IT service players as well as stand-alone engineering outsourcing firms. He expectedly claimed, however, that his firm’s 363 patents (of which 99 are solely held) have created a defensive moat around it. Interestingly, he was also clear that L&T had created LTTS as a separate business and that in his estimation at least, was likely to continue to keep it independent of Larsen and Toubro Infotech, its slightly larger IT services counterpart.

Panda said that the chief engineering officer ( or head of product design and development)is the primary customer of such services, and not the chief information officer. He says that the long sales cycle in engineering means that many IT financial analysts do not understand its nuances. He described a sales cycle that went from pilot to proof-of-concept stage only over six months, after which it takes another 12 months to get to revenue generation. The unpredictability built into such long sales cycles is different in many ways from a plain vanilla IT services sale which manages back-office services and applications at clients. And hence, the IT financial analyst community—with one or two exceptions—has not yet found a way to assess the performance of pure-play engineering services outsourcing companies.

Panda went on to describe a couple of interesting areas that his firm is currently working on: The first was in precise 3D printing for medical implants in the orthopaedic area. Doctors jokingly refer to their ortho colleagues as “carpenters". But many a true word is spoken in jest. One of the technologies that Panda claims to have produced for a client allows for the precise imaging and printing of, say, a knee joint that needs to be replaced, and a completely bespoke prosthetic is made precisely for that specific patient. This shortens the time the patient is under the surgeon’s knife and greatly helps with the post- surgery rehabilitation.

In another area, his firm has built a tracking device and web service for a logistics firm which detects temperature, light, humidity, barometric pressure and vital signs of the package, including whether it was opened or tampered with during transit, to offer live tracking of shipments. It uses communication technology to transmit this data in near real-time—providing the user with a constant, accurate picture of what’s happening within a supply chain. This web service is used for tracking the delivery of surgery kits, medical equipment and live organs. Businesses pay a single monthly fee of $120 for this service. It would be a positive for India if we are able to tap our vast engineering talent in areas other than back-office IT.

Siddharth Pai is founder of Siana Capital, a venture fund management company focused on technology.

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