NEW YORK, Oct. 7, 2024 - Global Management Consulting firm, Zinnov, released its industry-leading study on Enterprise Digital Engineering spends today. Zinnov shared that Digital Engineering spends remain strong, even in a potential recessionary period, having now stabilized at USD 1,032 Bn, at a 13% CAGR. Despite macro-economic headwinds such as inflation, geopolitical tensions, recession, and supply chain disruptions, investments in Digital Engineering are on an upswing, spurred by CXOs prioritizing operational efficiency, cost reduction, and the adoption of advanced technologies including AI, analytics platforms, automation tools, and IOT devices.
Zinnov's analysis reveals that Enterprise Digital Engineering spends will reach USD 1,654 Bn by 2027, owing to the unrelenting pace of technological innovation. The study, Digital Engineering report 2023, is a benchmark for business leaders across verticals that helps them identify strong partners for rapid and efficient deployment of Digital Engineering-led services initiatives across geographies.
ER&D investments in Europe showed resilience and grew by 9.5% in 2023, the highest since 2020. This increased ER&D spend is primarily driven by sectors such as Aerospace & Defense, Pharmaceuticals, and Industrial. Meanwhile, North America's ER&D spend slowed due to inflation control measures, geopolitical pressures, and shifting demand patterns, despite traditionally being a leader. This has impacted industry investments, large deals, and talent sourcing. Interestingly, APAC's ER&D spends exceeded expectations with a ~3% growth rate in late 2023, with China contributing over 10% of the global ER&D spend. Much of this spend from APAC is being channeled towards AI/ML, Robotics, Additive Manufacturing, Automation Tools, 5G, and Smart Manufacturing.
Hi-tech-led verticals continue to be the biggest contributors to the overall Digital Engineering spend at 55%, followed by Services-led verticals and Manufacturing-led verticals. The Software & Internet vertical continues to account for the lion's share of the overall Digital Engineering spend at USD 424 Bn, fueled by a massive 425% increase in AI investments since 2020. Co-investments, partnerships, and co-innovation are the primary business models that Tech Giants and Hyperscalers are leveraging to optimize their AI investments.
Digital Priorities of Enterprises
Even though the enterprises' digital priorities are evolving, a few key themes are emerging. Zinnov analyzed the top 2000 enterprise ER&D spenders and identified the following themes that they are channeling investments towards.
Generative AI: Generative AI is upending industries and economies at breakneck speed by enhancing customer experience, optimizing business operations, improving productivity, and providing personalization. Its applications have expanded beyond content generation, enabling enterprises to automate workflows, enhance efficiencies, and accelerate data-driven decision-making. Automotive and Industrial verticals are early adopters of Generative AI-led efficiencies, while adoption in Healthcare, BFSI, Media & Tech verticals is slow due to stringent regulations. Interestingly, enterprises across verticals are leveraging Generative AI to save costs, that they are reinvesting in core and/or transformational initiatives including infrastructure development, offerings enhancement, customer support, model (LLM/SLM) development and integration, and Generative QA.
Cybersecurity: Cybersecurity remains a top priority across verticals. Financial institutions are investing heavily in AI-powered threat detection and Zero Trust frameworks to combat increasingly sophisticated cyberattacks. In Healthcare, Cybersecurity is vital for protecting sensitive patient data amid rising threats to digital health records and IOT-connected medical devices. Critical infrastructure, including energy and telecommunications, relies on robust Cybersecurity to prevent disruptions and ensure operational continuity. As cyber threats evolve, companies across verticals will continue to strengthen their defenses, integrating advanced solutions to safeguard their systems and data.
Cloud: Hyperscalers continue to dominate the global Cloud landscape, with the demand for Cloud Computing surging across verticals. This rapid growth in the market is driven by the need for scalable, secure, and cost-efficient infrastructure to support AI, Machine Learning, and Data Analytics initiatives. Hyperscalers such as AWS, Azure, and Google Cloud are increasingly playing a pivotal role, not only in providing core Cloud infrastructure, but also in offering advanced Cloud-native services that cater to vertical-specific challenges. Enterprises are leveraging hyperscalers to drive digital transformation initiatives by adopting hybrid and multi-Cloud strategies to optimize performance, ensure scalability, and accelerate innovation. As more industries transition to the Cloud, hyperscalers will remain critical drivers of enterprise modernization and growth.
Sustainability: Sustainability is driving significant investments from enterprises in 2024. Organizations are focusing on green technologies, renewable energy, and eco-friendly business practices to reduce their carbon footprints. In fact, between 2018 and 2023, the proportion of green talent increased by an average of 5.4% annually, while the proportion of job postings that required at least one green skill rose by 9.2% per year. From adopting energy-efficient data centers to integrating circular economy models, sustainability initiatives are increasingly shaping corporate strategies. Enterprises are not only aiming to meet regulatory requirements but also enhancing brand reputation to align with consumer demands for environmentally responsible practices.
Speaking about the study, Sidhant Rastogi, President – Strategy Business at Zinnov, stated, "In today's hyper-digital world, technology is not just an enabler but has transformed the very fabric of modern life, reshaping every interaction, experience, and expectation. It has redefined the baseline of what good customer experience is. As the global landscape faces unprecedented challenges, the need for businesses to anticipate and innovate ahead of customer needs has never been more critical – all underpinned by technology."
Rastogi further added, "Digital Engineering is at the forefront of this transformation, with global spends projected to surge to USD 1.65 Trillion in the next 3 years, driven by rapid advancements in AI, Cloud, IOT, and Cybersecurity. This growth is not just a trend; it's an essential evolution fueled by interconnected ecosystems that bring together diverse expertise from across verticals – Automotive, Aerospace, Healthcare, and Semiconductor. This convergence is unlocking new frontiers in engineering, empowering businesses to not only navigate disruption but to turn it into opportunity."
Zinnov's Assessment of ER&D Service Providers
As part of the Digital Engineering study, Zinnov evaluated ~60 Global ER&D Service Providers for its annual Zinnov Zones ER&D and Digital Engineering ratings. The ratings encompass a comprehensive analysis of Service Providers' capabilities across six horizontals, seven verticals, and three micro-verticals. It also includes a geographic evaluation of high-spending regions like the US and Europe, focusing on key factors such as investments, client success, and delivery capabilities in Engineering services.
Zinnov evaluated the Global ER&D Service Providers across the following areas:
Overall
Overall ER&D Zones
ER&D Zones – Small and Medium Service Providers
Horizontals
Digital Engineering
Digital Engineering – Small and Medium Service Providers
Data & AI Engineering
Data & AI Engineering – Small and Medium Service Providers
Experience Engineering
Experience Engineering – Small and Medium Service Providers
Industry 4.0
Generative AI
Overall Hyperscaler Services
Hyperscaler Services (AWS) – Top 10 SPs
Hyperscaler Services (Microsoft Azure) – Top 10 SPs
Hyperscaler Services (Google Cloud) – Top 10 SPs
Verticals: Automotive, Aerospace, Consumer Software, Enterprise Software, Industrial, Semiconductor, Telecommunications
Micro-verticals: Software Platform Engineering, Medical Devices, and Electrification
Service Providers evaluated: Accenture, ACL Digital, Accion Labs, Akkodis, Alten, Apexon, Ascendion, AVL, Bertrandt, Birlasoft, Bristlecone, Capgemini Engineering, Caresoft Global, Cigniti, Cognizant, Cyient, Daffodil Software, EDAG, eInfochips, Encora, Expleo Group, FEV, Global Logic, Gopherslab, GS Lab|GAVS, Happiest Minds, HARMAN DTS, HCLTech, Hitachi Digital Services, IAV, Ignitarium, Indium, Infovision, Itransition, KPIT, LTTS, Marlabs, Mphasis, Ness Digital Engineering, Onward Group, Persistent Systems, Sasken, Softdel, Tata Elxsi, Tata Technologies, TCS, Tech Mahindra, TO THE NEW, Trigent, UST Global, VVDN Technologies, Wipro, Xoriant
*Z2000 represents Top 2000 global ER&D spenders across 20+ verticals.
About Zinnov Zones
Zinnov Zones is an annual rating published by Zinnov which assesses Global Service Providers based on their competencies, capabilities, and market success. Since 2009, Zinnov Zones (previously known as GSPR – Global Service Provider Ratings) has become one of the most trusted reports globally, for both enterprises and Service Providers to better understand the vendor ecosystem across multiple domains such as Digital Transformation, ER&D Services, IOT, Intelligent Automation, and Media & Entertainment.
This is the fifteenth consecutive year that Zinnov has assessed Service Providers for their ER&D capabilities. The detailed ratings and contact information of Service Providers are available at: https://zinnovzones.com/ratings/e-r-and-d-and-digital-engineering-services/overall/2024
About Zinnov
Founded in 2002, Zinnov is a global management and strategy consulting firm, with presence in New York, Santa Clara, Houston, Seattle, Bangalore, Gurgaon, Pune, Hyderabad, and Paris. Over the past 22 years, Zinnov has successfully consulted with over 250+ Fortune 500 enterprises to develop actionable insights to help them accelerate their technology journeys to create value – across dimensions of revenue, transformation, and optimization. With core expertise in Digital Engineering Talent, Digital Transformation, Innovation, and Outsourcing Advisory, Zinnov assists clients by:
Enabling global companies to develop and optimize a global engineering talent footprint through center setups and accelerators - in an as-a-service model, as well as optimizing their global portfolios, to achieve higher R&D efficiencies, innovation, and productivity;
Advising global PE firms in asset shortlisting and target evaluation, commercial due diligence, and value creation;
Growing revenue for companies' products and services in newer markets through account intelligence, market entry, and market expansion advisory;
Helping global companies outline and drive their open innovation programs, design and operate accelerator programs, and enable collaboration with start-ups across specific use cases and predefined outcomes;
Structuring and implementing Digital Transformation levers enabled by technologies like AI/ML, Intelligent Automation, Cloud, IOT, etc.
With their team of experienced consultants, subject matter experts, and research professionals, Zinnov serves clients from across multiple industry verticals including Enterprise Software, BFSI, Healthcare, Automotive, Retail, and Telecom in the US, Europe, Japan, and India. For more information, visit http://www.zinnov.com.
Media contact
Nitika Goel
Chief Marketing Officer, Zinnov
media@zinnov.com
