industry trends 2019 - assets.vector.com · industry trends 2019 3 1 executive summary global...

Industry Trends 2019:

Convergence Drives Competitiveness and Innovation A White Paper by Vector Consulting Services

Industry Trends 2019

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Table of Contents

1 Executive Summary ................................................................................................................................................ 3

2 Industry Survey: The Two Forces of Competitiveness and Innovation ............................................................. 3

3 The Real Challenge is Quality ................................................................................................................................ 5

4 Convergence of Enterprise and Embedded .......................................................................................................... 5

5 Technology Outlook ................................................................................................................................................ 7

6 Perspectives ............................................................................................................................................................ 8

7 Acknowledgement ................................................................................................................................................. 10

8 References ............................................................................................................................................................. 10


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1 Executive Summary

Global economy is at its turning point. Growth rate is forecasted to decline in major markets. “Slowbalization” seems to

gradually move from a trendy economic term into reality. At the same time Vector also sees a clear strive of many companies

to become digital winners. The Vector annual industry survey 2019 gives insight into the top challenges as observed in

different industries and regions in the world. It also prescribes success factors to become a digital winner. This report

provides survey results as well as hands-on recommendations for engineering and learning from our global

consulting projects.

Survey participants observe three significant changes. Competences, Distributed Teams and Compliance have moved

most into attention during 2018. Competences have emerged as the single most relevant short-term challenge, while the

Distributed Teams and Compliance continued moving further up.

When clustering the dots from the survey, the two forces Competitiveness and Innovation best highlight industry

prospective. You need both to sustainably succeed, but resources and competences are simply not available. The biggest

challenge for Competitiveness thus is Quality, here emphasized with two major drivers, namely safety and security. At the

same time, innovative solutions regarding connectivity, autonomy, digital transformation are constantly expected by markets.

Yet, necessary changes and investments, such as for digital transformation, had been avoided too long.

One key driver facilitates competitiveness and innovation. We call it Convergence of Enterprise and Embedded. This

means there is no more divide of enterprise IT versus embedded or CS versus Engineering. It enables the real-time

observation and control of infrastructure, services, systems and processes.

These two forces of competitiveness and innovation from our survey create challenges that demand fully new solutions in

business, R&D and engineering. Convergence levers the two forces towards sustainable business prospective for technology

companies. It helps transform once isolated systems, such as a car or a medical implant, into a distributed IT system with

cloud access, over-the-air functional upgrades, and high-band-width access to map services, media content, other devices

and surrounding infrastructure. To drive this convergence forward and to strive despite economic slowdown, we suggested

companies focus on six key aspects: Business model, value with customer, artificial intelligence, quality, competence and

knowledge management. This focus as opposed to a backward looking red-ocean fighting will distinguish those who

are capable to be the digital winners.

2 Industry Survey: The Two Forces of Competitiveness and Innovation

For more than one decade, companies worldwide have been very successful and in continuous growth. Since mid-2018 the

global economy is darkening. Amid such global economic trends, Vector Consulting has been asking industry partners

worldwide to provide their view on industry challenges. We have been asking almost 2000 decision-makers in companies in

worldwide B2B context on the top three challenges that they face. The results in form of this white paper are openly available.

Global economy is at a turning point. Reasons are manifold, be it global trade restrictions, changes to long-time political

relationships, or local industry impacts. In a recent study of strategy consulting firm McKinsey, more than half of executives

say global economic conditions are worse now than six months ago [1]. The picture is similar in developed economies as

well as emerging economies. Looking to this year 2019, economic conditions are forecasted by executives lower than they

have been during past years, in their own sectors but also globally speaking. This holds specifically for Asia, which in past

years always enjoyed a double-digit growth rate, but with not much difference across industries and regions worldwide.

Such gloomy trends also impact the challenges as they are perceived in our industry survey. Fig. 1 provides the survey

results of the Vector study. The horizontal axis provides perceived short-term challenges, and the vertical axis shows more

mid-term challenges. Since each reply allowed up to five challenges in both dimensions, the sum is more than 100 percent.

The validity is given with a response rate of four percent covering different industries. It thus represents different B2B

business models, as well as regions in the world.

Figure 1 shows the data points and allows an interpretation about the major current trends. We observe here three significant

changes, as underlined by the red arrows which show the trend direction compared to our last year survey:


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> Competences have emerged as the single most short-term challenge, even in front of efficiency and quality. The

reason is simple to grasp. Companies struggle to get the right competences on board, specifically for the new and

challenging topics of IT and embedded. We face that in our consulting projects, which demand quality.

> Distributed teams are further growing. Hardly any product is developed in one place. Instead, most teams capture

several sites, often even with heavy time zone differences. Where there were two rather close time zones with for

instance Europe and India, we now see Europe, Americas and China. With such split, it is hard to find even an

appropriate single hour when all teams would be reachable at the same time. We are today coaching many virtual

teams to ramp up agile and scale it for the needs of high-criticality in distributed projects.

> Compliance has increased its short-tern relevance. While in previous years, companies were still of the opinion that

the process acumen of the past were still enough, it is now obvious that process maturity has decreased. During 2018,

we had more task forces than ever at clients to master a fast recuperation from basic flaws in configuration

management and requirements engineering. Often agile development had been used as an excuse of “everything

goes”, which translated into reduced process focus. Documentation became insufficient, architecture decisions went

undocumented, and test strategies faded. With increasing risk of product liability for instance in functional safety and

cybersecurity, our customers now fast need to recuperate in compliance topics.

Figure 1: Industry challenges in Global Product Development

When clustering the dots, we see two areas which dominate industry. These two areas can be depicted as two forces which

both drag product development in the high-tech sector across industries, namely:

> Competitiveness, i.e. the urgent need to deliver with competitive cost and quality, while at the same time competing

on competences. This is clearly a short-term need and reflects the currently increasingly perceived economic

weakness across sectors. Only with right amount of quality, efficiency, competences and mastering distributed teams,

companies will survive the upcoming tough times. At the same time, we strongly recommend not ending up in red-

ocean ancient patterns, such as bling cost reduction while accumulating technical debt. Now is the time to invest to

innovative products and solutions.

> Innovation, i.e. the demand for new solutions from markets regarding connectivity, autonomy, digital transformation

etc. Markets expect innovative products. Digital transformation and related technical topics are driven by industry

leaders that increasingly have their roots in classic IT business. Amazon, Apple, Google and Microsoft all approach

the service industries. They will not stop in front of previously incumbent territories, such as Google with its Waymo

mobility services and autonomous cars.


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Productivity and innovation are mandatory at the same time to survive in uncertainty and competitiveness. Many companies

with whom we talked reported a push to reduce prices more 10-20 percent for same products year over year. This pattern

has been recurring in volatile environments, starting in the late sixties but also visible for instance in the 2008/9 global industry

crisis.

Global product development today is challenged with extreme short-term pressure on efficiency and cost. This is

indicated by the pole at the far-right side of the diagram where efficiency and cost are by far the biggest short-term challenges.

Companies spend huge energy to become faster and stay competitive in product development cost. This evolution towards

virtual teams and short-term allocation mandates agile set-up. They are mandatory for time and cost efficiency in an

increasingly competitive market.

3 The Real Challenge is Quality

Innovative products need to be pushed to markets covering the major trends of connectivity on one side representing the

more embedded industries such as mobile services, automotive and transport and digital transformation on the other side,

representing IT services. Needless to say, both are converging towards one new software and service industry covering both

IT and embedded Internet of Things (IoT) systems, which are connected by cloud solutions.

The real challenge is quality, here emphasized with two major quality drivers, namely safety and security. We have

chosen these two because they are pivotal in this converging software industry. Cybersecurity is mandatory to ensure trusted

connectivity. It also safeguards the reliability of related mobile and distributed services. Functional safety represents the

growing awareness of product liability, where specifically embedded devices must ensure absence of hazards to users and

environment. Recent growth of lawsuits in medical, transport and industry shows that functional safety is fast growing in its

relevance. Understanding that there is no safety in distributed IT systems without cybersecurity makes this pair of qualities

indispensable. Looking at its positioning in our survey shows that it is key soon – but currently there is not enough time.

Since last year we face an increasing amount of companies setting up task forces and spinning the hamster wheels at highest

speed. This might work for a short time, but not with sustainable productivity and quality. The cure is reducing technical debt

and refactoring legacy. For instance, many clients have abandoned their process improvement programs during past years,

assuming that a CMMI or ASPICE maturity will prevail. Even worse, some have established bottom-up agility without a clear

focus on value and sustainability. Wrong! The results are increasing difficulties to integrate software, trace safety and

security, and keep consistency across artifacts and variants. The cost of task forces to repair this missing process focus

is by far higher than the usual 2-3 percent of R&D for maintaining engineering maturity. This immediate effect is

overarched by reduced motivation of engineers with dramatic productivity impacts.

In the software-driven industries we realize that despite all these warning signs, necessary changes and investments, such

as for digital transformation, had been avoided too long. Investments towards efficient processes had been stagnating. In

fact, we have worked with big international companies who had reduced their focus on process maturity over the past few

years. Process maturity as observed in project management or configuration management has been declining with an

increasing amount of rework and quality problems. A heated software and IT business climate made many to just deliver

innovations, rather than stabilizing their assets. Business "went well" and teams had more than enough to do with daily

operations. To mitigate business risks, product portfolios should have been adjusted counter-cyclic. This has opened a gap

of complexity and competence.

Therefore, it is important to balance the two poles of efficiency versus innovation. This is where product management meets

product development to identify best technical solutions that satisfy market needs.

4 Convergence of Enterprise and Embedded

Looking behind the scenes we see one key driver, which allows for competitiveness and innovation. We call it convergence.

Convergence is currently melting entire disciplines to fully new business models and technologies across industries. What

used to be embedded systems on one hand with their specific constraints from the physical environments and IT on the

other hand, are combining [1,2]. This will impact education programs as well as classic industry boundaries.


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What exactly is convergence? Convergence is the awareness that with increasing connectivity and autonomy the historic

divide of enterprise IT versus embedded or CS versus Engineering is rapidly disappearing. With industry, home, medical

and automotive applications being major drivers, IT will converge with embedded systems such as IoT (Internet of Things).

At the same time embedded industries will evolve towards IT with cloud solutions and dynamic over-the-air upgrades.

Figure 2: The convergence of IT and embedded systems

Convergence is the prerequisite for digital transformation and enables the real-time control of systems, devices,

infrastructure, services, and processes. It is the link between the real world and the digital world. This includes data

acquisition, analysis and modeling as well as the necessary information technology and networking. Autonomous driving,

predictive maintenance, IoT and Industry 4.0 are current application areas that all are based on convergence.

Take industry robots, medical surgery systems or autonomous cars. Their distributed embedded intelligence is connected

and driven by cloud-based IT systems. Software is flexibly moving from cloud to embedded devices with a bi-directional

data-flow. Cloud-based IT systems provide the intelligence for the embedded devices while the embedded devices facilitate

distributed low-cost sensors and actors. One is deeply connected with the other, and so it makes not much sense to

distinguish IT from embedded. Of course, requirements are different depending how such systems are deployed. A nano-

device implanted to a human has different physical, quality, energy and IT requirements than a server farm. Yet, it depends

on shared software and information which makes the previous tangible boundaries between embedded and back-office

diminishing.

Fig. 2 shows this fast-evolving convergence with the example of automotive IT. The left side shows the three-tier reference

architecture which we will see in all converging systems in the future. These three tiers have fast become a reference as it

ties into layered IT-structures and allows to abstract the three major functions of cloud, performance and devices. In its

implementation these abstract tiers disappear like the seven OSI tiers in networks. They help design efficient systems with

strong vertical interconnection.

A case in point is the classic telecommunication industry. It used to be based on distributed embedded technologies. With

the advent of Internet and growing IT services, the discipline simply disappeared some ten years ago. Once proud companies

and industry leaders such as Alcatel, Lucent and Motorola have ceased to exist. Others like Cisco, Nokia and Huawei have


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reinvented themselves and transformed to convergence companies which master both IT and embedded systems. Today

only historians would still speak of telecommunications.

Education programs must change along the same pace. Computer science, once the proud theoretical arm of software

education on one hand, and engineering domains, such as mechanical and EE on the other hand, are converging to systems

and software engineering disciplines with new curricula. Industry is looking for graduates who master both the software with

algorithms and underlying theoretical foundations. They also look at engineering as a disciplined approach with empirical

methods and system understandings from domains as diverse as automotive, chemical, medical and transport.

5 Technology Outlook

Technology convergence is spearheading innovation – in automotive, IT, industry, medical and beyond. With IT and machine

learning reaching into devices such as IoT, embedded development is no longer isolated within devices but benefits from

connectivity and cloud services. Software engineering for automotive systems today encompasses modern embedded and

cloud technologies, distributed computing, real-time systems, mixed safety and security systems, and not least the

connection of all that to long-term sustainable business models.

Requirements and technology needs are high and range from ubiquity to performance, safety to cybersecurity, and energy

efficiency to usability. Governance and compliance to standards dominate many disciplines and mandate traceability of

requirements to implementation and release – of each single product. Real-time behavior is a critical need of all critical

systems, from finance to cars. Practically all functions demand at least soft real-time behaviors. Each area has its own

requirements for computation speed, reliability, security, safety, flexibility, and extensibility. Complexity has reached a limit

that demands an architectural restart with distributed IT and embedded plus cloud solutions with service-oriented

architectures (SOA).

Mastering technical debt will be a key differentiator specifically in tough economic times. Those who save now on quality and

process, will fail tomorrow due to product liability and brand damages. Quality and performance risks obviously increase with

less competence and capacity being available. Here agile practices help to prioritize and focus (fig. 3)

Education matters for professionals. Growth will continue to be fast and thus demands for well-educated engineers,

developers and managers who are familiar with the two worlds of IT and embedded systems. Education however has only

in rare cases dedicated programs for engineering these converging IT and embedded systems. To keep the fast momentum

while ensuring performance and safety, we recommend more investment in education and life-long learning. Consider

blended learning and tailored trainings as we also offer (www.vector.com/consulting-training).

Business models will evolve towards flexible service-oriented architectures and eco-systems. Reference points based on

industry standards such as three-tier IoT architectures and seamless connectivity facilitate platforms across companies and

industries. The classic functional split is replaced by a more service-oriented architecture and delivery model. Development

in the future will be a continuous process which will fully decouple the rather stable hardware from its functionality driven by

software upgrades. Hierarchic modeling of business processes, functionality and architecture from a systems perspective

allows early simulation while ensuring robustness and security. Agile service delivery models combining DevOps, micro-

services and cloud solutions will allow functional changes far beyond the traditional V approach.


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Figure 3: Agile practices focus on what matters (picture is available as poster; see at end)

6 Perspectives

Convergence Drives Competitiveness and Innovation. The two forces of competitiveness and innovation from our survey

create challenges that demand fully new solutions in business, R&D and engineering. We had never seen such strong push

for efficiency, quality and competences at the same time. Convergence levers the two forces of competitiveness and

innovation towards sustainable business prospective for technology companies.

ACES is the short and shining abbreviation of how we perceive perspectives in a high-technology competitive environment

such as automotive, IT, industry and medical. The four letters stand for Autonomy, Connectivity, Ecology and Services.

Vector sees these four themes as the main drivers for both innovation, sustainable leadership and – not the least – education

and competence growth of engineers and management.

Success with ACES needs to focus on several dimensions:

> Business models. Markets today want to have sustainable networks of suppliers. The traditional concept of supply-

chain is disappearing. Suppliers are subject to continuous replacement where necessary. The success of a supplier

depends how well he can create communities and business models together with customers and other suppliers. For

instance, software has such low entry levels that a new competitor is simply a mouse-click away. Friction-free

deliveries further add to this competitive trap. Crowdsourcing with networks of stakeholders developing and

maintaining components, wikinomics to efficiently get access to and manage big data are two recent examples.

> Value with customers. Value-oriented engineering will grow rapidly, i.e. improving the evaluation of requirements

within a business case from a portfolio management perspective. This implies dynamic segmentation down to the

single-buyer segment. It is about speed to needs. Customers are not interested in features, but in satisfying their


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needs. Customers’ relationship with organizations will not end at the delivery or sale of product or service; rather

organization would need to continuously co-create value for the customers.

> Artificial intelligence. It is the technology trend dominating all others. Having been around for decades, converging IT

systems allow AI to control ubiquitous distributed embedded systems. Each software engineer must ramp up the

necessary AI competences and connect with his or her respective industry domains. Algorithmic transparency will be

demanded by policy-makers for autonomous systems and machine learning to ensure fairness and compliance with

laws. To support this, AI experts must become socially responsible and at the same time deliver algorithms which are

explainable.

> Quality. The increasing amount of IT for sophisticated services and autonomous systems rises the bar for quality. This

includes safety, cybersecurity but also performance and usability. Product liability will force struct governance rules to

prove that quality standards had been observed. Quality is a habit which must continuously evolve. Last year best

practices might still cope with standards, but not be future-safe and most efficient. We often face companies who even

move backwards and assume, that once they had implemented high process maturity, this will last forever. The result

is degrading quality, specifically in the quest to save engineering capacity.

> Competence. In a world of fast-paced, innovation-driven change the criticality of learning will further grow. Learning

must be continuous and blending foundations with hands-on experiences. Convergence means a fully new skill-set

ranging from systems engineering towards architecture of both enterprise and embedded, down to implementation,

technologies and a wealth of methods to ensure cybersecurity, performance and functional safety. High-potentials

prefer challenging assignments that provide opportunities for learning and growth. In previous years, such challenging

assignments along with continuous learning was a key success factor to retain good engineers. Even with weaker

economic conditions, still the most valuable employees should feel the possibility to grow further along with their

assignments.

> Knowledge management. Knowledge is the currency of the 21st century. With global development teams and

constantly changing markets techniques for capturing the wide-spread knowledge on customers, markets, products

and technologies are necessary. Competences and knowledge are our primary assets. Their management must be

people-dependent to mature products and product management in an ever-changing environment. Appropriate data

sanitization and de-biasing, at scale, would be required. Organizations would need to build a provenance into the

models they train from the data. The models along with the data used for training needs to be curated and labeled.

Figure 4: Prepare for the Future: ACES

Convergence of IT and embedded allows value generation by innovatively combining state of the art communication

technologies using artificial intelligence, data analytics and big data. It is opening the doors for technology innovation, new


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business models, and collaboration schemes across industries. Multimodal mobility will connect previously separated

domains like cars and public transportation. New services such as sharing create fully new eco-systems and business models

far away from the classic buy your own product approach. Convergence will transform once isolated systems, such as a car

or a medical implant, into a distributed IT system with cloud access, over-the-air functional upgrades, and high-band-width

access to map services, media content, other devices and surrounding infrastructure.

Struggling with the weak economic outlook, future is arriving while some are tuning their hamster wheels. It is not those to

succeed who now reduce R&D, but those who balance the two forces of competitiveness and innovation. Technology

strategist Hermann Kahn observed several decades ago: “Everybody can learn from the past. Today it's important to learn

from the future.” This is the wake-up call to use convergence against the weak economic outlook. Who takes neither

ownership nor risks will not survive in our competitive business.

7 Acknowledgement

We want to thank all survey participants for supporting this study and thus ensuring validity. Specifically, we appreciate our

many clients worldwide for allowing us together to strive for continuous improvement – and thus boost innovation and

competitiveness.

8 References

[1] McKinsey global economic survey. Jan. 2019. https://cdn.ksrinc.com/mckinseysurvey/article49.pdf

[2] Ebert, C. and S. Counsell: Toward Software Technology 2050. IEEE Software 200 anniversary issue, IEEE Software,

ISSN: 0740-7459, vol. 34, no. 4, pp. 82-88, Jul/Aug 2017

[3] Porter, M.E. and J.E. Heppelmann: How Smart, Connected Products Are Transforming Competition. Harvard Business

Review, Nov. 2014, https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition


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Author:

Christof Ebert is the managing director of Vector Consulting Services. A trusted advisor for companies around the world

and a member of industry boards, he authored several books. He serves on the IEEE Software editorial board. A professor

at the University of Stuttgart and the Sorbonne in Paris, he cares for continuous education and is building bridges from

industry to science and vice versa.

Follow Christof on Twitter: @ChristofEbert. Contact him at [email protected]

Vector Consulting Services is a globally active consulting firm with focus on development and IT, transformation processes

and interim management. Renowned companies from automotive, information technology, manufacturing, transport and

aerospace rely on the professional solutions and pragmatic implementation. A subsidiary of the Vector Group with almost

3000 employees, Vector Consulting supports its clients worldwide with sustainable consulting solutions covering the entire

life cycle and the related infrastructure. To ensure independent and customer-oriented consulting the firm is managed by

partners. Details and further information: www.vector.com/consulting and #VectorVCS

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Ms. Anh Kim

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