Engineering and R&D (ER&D) organizations are outsourcing an unprecedented proportion of work previously done in-house, as they seek to innovate faster and address talent shortages.
A recent survey by Bain found that 60% of companies plan to increase ER&D outsourcing over the next three years, while 60% said they also plan to shift work offshore or nearshore in the same period.
ER&D outsourcing is growing across all areas of expertise, particularly cybersecurity, the Internet of Things (IoT), cloud, embedded software, and data engineering and analytics.
Software talent gaps are fueling offshoring, as companies seek deep pools of digital talent in global markets.
The use of ER&D service providers varies by industry, with the advanced manufacturing and services, automotive and mobility, medical devices, energy and natural resources, and aerospace and defense sectors most inclined to increase outsourcing over the next three years.
Companies are also outsourcing a wider scope of activities, such as the end-to-end design of products or the development of key components.
In response, ER&D-focused companies are asking outsourcers to take on more responsibility, with 60% of respondents saying they are switching from traditional staff augmentation to engagement models, where service providers assume a larger role managing the project and share risk.