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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
Your contact at Vector Consulting Services:
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Vector Consulting Services
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