Insights

How the Pandemic Changed Digital Engineering

Gilroy Mathew, VP, Global Head of Semicon Engineering, UST

While the pandemic has created budget cuts across many different verticals, digital engineering and R&D budgets overall have remained resilient.

Although digital engineering and R&D spending growth slowed down in 2020 to a nominal 3% year-over-year growth, it rebounded to pre-pandemic year-over-year growth in 2021(9%), according to growth projections by Zinnov.

Companies have invested in digital engineering to spur innovation and bridge the gaps between market demand and capabilities gaps. They focus on creating significant customer value by going the next mile and delivering beyond expectations. Digital engineering will only increase in importance as companies look to compete on the basis of next-generation technology and digital innovation.

The software, semiconductor, and telecom verticals have remained on a higher growth trajectory due to the need for software applications, a surge in demand for chipsets and the need for higher bandwidth and connectivity. The remaking of the corporate workforce from in-office constituents to remote workers has placed an even higher demand on hi-tech solutions that enable real-time communication, video conferencing, and sharing documents online. Since most experts predict we will not return to the same office-dominant workforce as existed before the pandemic, this demand will continue unabated.

Companies could potentially afford to make cuts in other areas, but with consumer spending for goods and services holding steady and up in some cases, investing in producing new and compelling digital products is paramount. A recent Gartner CFO study found 40% of companies planned to increase their technology spend, preferring to make cuts elsewhere like office space. Many believe investing in automation will ultimately reduce costs, so it's a big opportunity for those companies who get it right.

Key Takeaways

• Companies continue to invest in key digital engineering areas, such as Cloud, IoT, AI/ML, and Analytics
• Hi-Tech-led verticals have weathered the pandemic better than other verticals
• Chip-to-Cloud is and will continue to be a major investment for advanced ER&D

Digital engineering overview

Companies have prioritized Engineering and Research & Development (ER&D) since the beginning of the industrial revolution to make laborious tasks easier and hassle-free. From making mobility efficient to staying connected across the globe and performing complicated tasks quickly and efficiently, engineering has significantly transformed manufacturing, hi-tech and services-led verticals over the last two centuries.

Key Areas of Investment in Digital Engineering

Digital engineering focuses on enhanced customer experience and operational efficiencies enabled by Next-gen engineering skillsets such as:

• Cloud: a virtual platform for applications and data hosted either publicly or privately
• Artificial Intelligence/Machine Learning: Advanced technologies that improve without human intervention by ingesting information
• Internet of Things: A series of technologies that can communicate with each other to improve efficiencies
• Analytics: The study of data to produce insights relevant to the business

Digital-heavy verticals like software and the Internet have had higher growth opportunities during the pandemic.

Change in the Industry Dynamics

While the pandemic has impacted enterprises across all verticals, the impact differed.

• Manufacturing-led verticals
  Manufacturing-led verticals, such as the automotive, aerospace, and industrial industries, historically dominate the ER&D market. The COVID-19 pandemic hit these verticals hard. Flights were grounded, and the supply chain halted, creating a huge cost pressure that resulted in a dip in ER&D spending (decreased from 58% in 2019 to 51% in 2021), according to Zinnov data.
• Services-led verticals
  Services verticals such as banking, financial services and insurance (BFSI), retail, media & entertainment, healthcare, payers & providers, and others have traditionally underinvested in ER&D spend, focusing on IT areas instead.
  
  Yet, during the pandemic, companies in these verticals had to transform overnight to continue serving customers who needed online access to services. The need for customer-facing platforms such as digital banking, OTT, telehealth, and frictionless commerce solutions has led to accelerating digital engineering spending across these verticals.
• Hi-Tech led verticals
  Hi-tech verticals, such as software and internet, consumer electronics, telecom, and others, have been able to navigate the pandemic better than manufacturing-led verticals due to their increased focus on next-gen engineering areas. These industries were incredibly important and resilient during the pandemic and are expected to remain important in the near future.

The path to next-gen engineering

Next-gen engineering paves the way for innovation and development beyond legacy engineering techniques. It offers the potential to re-think, re-define, and innovate to create more value for customers and differentiate oneself from peers to win in the long run. ER&D departments have arrived at an inevitable point of inflection where players across industries will either disrupt or face disruption from competitors.

To stay ahead of the disruption curve, next-gen engineering trends are rapidly growing across industries and are horizontally cutting across verticals. The widespread adoption of these next-gen engineering solutions is helping industries breakthrough through decades of stagnation and address new-age challenges with cutting-edge solutions.

What’s next

Experts predict sustainability, semiconductor engineering, IoT, Cloud and others will be key growth drivers in the future.

One of the biggest opportunities in next-gen digital engineering is Chip-to-Cloud, a key component of next-generation IoT engineering. Chip-to-Cloud features always-connected microchips that power a more secure, energy-efficient IoT framework. Chip-to-Cloud prevents data loss and unnecessary latency, enabling companies to more rapidly deliver their solutions to customers. Enterprises worldwide will likely increase investments in Chip-to-Cloud to drive their engineering portfolio forward.

UST’s Digital Engineering Approach

UST's approach puts the user experience first and foremost. We often start with the creation of a minimum viable product (MVP) to reduce the time to market.

We are involved every step of the way, from the ideation process to the product’s creation, becoming part of your product’s complete life cycle journey. Whether our clients need help ideating and developing a new product or adapting a legacy product to better suit today’s customer needs, we work hand-in-hand to produce the optimal result. As such, every client has a unique situation that requires attention to detail and customization. And finally, we make sure whatever we build or transform is scalable and secure.

To learn more about how UST helps companies plot the right path toward digital engineering, download our whitepaper Next-Gen Engineering: Transformation Across Chip-to-Cloud.