You’ll likely outsource more R&D projects in 2020. Here’s how to ensure their success
A deep-dive into the future of R&D outsourcing in automotive and a strategy for staying ahead of the game.
This article is based on Bamboo Apps’ whitepaper “R&D Outsourcing in Automotive: A Success Model for C-Suite”. You can download a free full version with more tips and real-life cases from our experts here.
Today cars are essentially becoming computers on the wheels with digital technology taking up to half of the development costs. The increased functionality leads to the accelerated complexity for OEMs, which have to manage the integration of hardware and software into vehicles. At the same time, racing to react to fast-changing consumer demands with innovative solutions, OEMs have to shorten product life cycles, which is causing additional pressure for flexibility and innovation.
Those factors contribute to the extensive use of R&D outsourcing as a tool for releasing internal resources while forcing manufacturers to expand the search for niche expertise. To make things more complicated, the industry challenges combine with the global shortage of technology talent. Reports predict that by 2020 the U.S.¹ and the UK² will see a shortage of more than 1 million tech professionals.
The growing gap between supply and demand of expertise will make it very difficult to cover business needs only with the help of in-house teams. Thus, in the nearest future OEMs will have to heavily rely on outsourcing.
In the meanwhile, outsourcing collaborations are still generally notoriously difficult to manage. According to Deloitte³, about one-third of all the partnerships fail in the first year, while two-thirds of the executives report issues during the transition of projects to outside vendors.
Estimating chances for a successful outcome of the outsourced project is also tricky because during the onset of the transition no one anticipates future complications: both parties have high expectations and their interests are in sync.
It’s only during the second phase when all the involved start to experience the full effect of the transition. Tension grows as the scope of a project and the complexity of the transition come into focus, and most of the established processes undergo stress-testing. Shortcomings in many aspects become evident and overwhelming, leading OEMs to a fork in the road, where they should make a decision whether to continue or drop the collaboration. But no matter the choice, overall client experience and outcome will still suffer.
In this perspective driving cost-reduction should no longer be a main decisive factor for adding a vendor to outsourcing ecosystem. The spotlight moves to ESP’s ability to deliver additional value. And the careful evaluation of this ability becomes a new challenge for the executives, who are to decide if a vendor will make or break the success of an outsourced R&D project.
But fear not, there are at least 6 parameters you can look into to find the right vendor and ensure the success of your outsourcing initiatives.
Validate Vendor’s Expertise and Capacity
There are several aspects that can give helpful insights into the vendor’s expertise and ability to deliver.
Contractor Type
Organization type may be the most obvious of the clues, but it’s often underestimated. Essentially, the choice lies between large outsourcing companies and smaller service agencies. Although the first may attract OEMs with automated solutions and therefore reduced delivery time and costs, the quality of the final product can be hit or miss. Such vendors lack understanding of the industry-specific standards and practices as well as experience and highly-skilled talent. That said, when it comes to outsourcing R&D projects, narrow specialization is a big advantage of ESPs.
Scalability of Experience
R&D projects vary significantly as do the skills required to complete them. In a particular moment of time, you may be satisfied with a vendor having competences only in select development areas, but later this approach will prove to be less efficient. Having to manage multiple vendors is resource-consuming and may drain the outsourcing budget quickly. Plus, it may cause a lack of flexibility when your company will have an emerging need for scaling their own projects.
That said, having in an outsourcing ecosystem a trusted vendor with a scalable experience and skillset from the start has proved to be a more provident strategy. You can outsource to such partners projects from the different ends of the complexity spectrum with peace of mind.
Combination of Design & Technical Excellence
Seamless integration of the delivered R&D project will equally depend on the design and technical expertise of the team that will be working on an outsourced project. ESP’s portfolio should prove that their on-site team has a deep understanding of software and automotive hardware, sufficient knowledge of frameworks and restrictions, and mastery of testing and prototyping.
Surround your company with those who bring a new vision
“It’s really beneficial if vendor’s team has a level of knowledge and skills similar to that of your on-site designers and developers, because not only will be they able to meet quality and innovation targets but also to outperform them. When Bamboo Apps started working on the concept of a connected car app for Gentherm, the client provided us with the mockups. After analyzing and testing them, we suggested some improvements”, says Andrew Lesnov, Bamboo Apps’ Project Manager.
Implementation of the two-level logic significantly improved usability: top-level screen now allows for quick and easy access to the core functionality of the system, while detail screens let users customize the settings of a particular seat. Bamboo Apps also enhanced the design: original slider bars were replaced with visuals that clearly indicated current settings of each element of a seat while controls were resized for touchscreen convenience.
To ensure seamless integration of the final design concept with third-party hardware, it was also aligned with LabVIEW guidelines and adapted it to technical restrictions. As a result, the innovative functionality of Gentherm’s seats was complemented by engaging intuitive design and optimized user experience.
Evaluate Operational Maturity and Stability
Vendor’s portfolio is a good clue to understanding their potential to meet quality level requirements, as well as their mastery of necessary technology and overall understanding of the industry-specific design trends. However, it lacks information about ESP’s ability to acknowledge the importance of the initiative in aligning expectations, establishing strong governance of the project that will benefit their own stability and quality of service and product they deliver. So, what can imply a vendor’s operational maturity that is extremely valuable in today’s context⁴ where outsourcing contracts focus more on “how” instead of “what”?
Collaborations and Internal R&D Projects
ESP’s history of collaborations is like a real-life model of a potential partnership: it helps to track their complete journey from establishing cooperation processes to execution and delivery of the final product.
Completion of internal R&D projects also adds points to the vendor’s credibility, because the better quality of the service comes with a better understanding of client needs. And companies that have managed internal R&D projects with set timeline and deliverables demonstrate more accuracy in estimating effort, time, and resources for meeting set targets, as well as more initiative in co-management of processes and co-creation of the additional value. Such vendors have the potential to become your trusted advisors.
Communication strategy
Transparent, consistent, and timely communication is crucial for avoiding pitfalls of transition, but it works only if both parties are equally engaged in strategic discussions. Consequently, ESP’s initiative in arranging close contact with your company’s senior management and maintaining an ongoing exchange of outsourcing performance data is a reliable indicator of the potential for successful cooperation.
Ideal communication matrix coming from the vendor should suggest having accountable teams in both companies. There should also be an agreement on the frequency and format of interactions that will boost the effectiveness of problem-solving.
Governance structure
Vendors’ perception of their place in project governance structure should also be considered a deal-breaker when evaluating companies from a shortlist of potential outsourcing partners. A supplier needs to be open for taking over a lion’s share of the project management. For example, ESP should offer their expertise in creating a team of best-suited project managers in both companies, distributing roles and responsibilities, and defining procedures of product delivery and approval.
Outsourcing trends in the automotive industry are promising for ESPs, who will see an increase in demand for their expertise. More vendors will be trying to enter the market, which will create more opportunities as well as more difficulties for OEMs in finding a reliable partner for long-term collaboration on R&D projects.
By creating a model for predicting the success of an outsourced project, based on an assessment of vendor’s competencies, you’ll ensure a positive experience, get a key to a technology advantage, and ability to adjust to fast-changing customer demand and disruptive industry changes.
References
[1] Gartner, Emerging Risks Report
[2] The Edge Foundation, Skills Shortages in the UK Economy
[3] Deloitte, Global Insourcing and Outsourcing Survey
[4] Global Sourcing Association, Outsourcing in 2020
[5] PwC, R&D Outsourcing in Hi-Tech Industries
