HFS Highlight: HCL positions “Digital Engineering” as next-generation services to accelerate the digital enterprise journey of its clients

We attended the October 2020 HCL Technologies’ Analyst and Advisor Day 2020 event on Digital Engineering to understand its overall focus on the ERS segment including its alignment with overall HCL vision and strategy, key client engagements, and differentiating factors among others. Overall, digital engineering is a key service offering for HCL and it believes that digital engineering will remain a critical enabler and an integral part of clients’ digital journey in the future.

HCL engineering services reflects the ethos of the overall HCL enterprise

Recently, HCL featured in Forbes list of World’s Best Employers 2020 (Ranked 30 among 750 multinational large corporations across the world and ranked #1 among multinationals headquartered in India), received the highest CSAT score in the last 10 years, and accredited with top corporate governance score (ISS Governance QualityScore 1). This overall employee-centric culture, strong leadership, and client centricity are also reflected in delivering engineering services. As enterprises are re-looking at their existing product portfolio and roadmap, digital engineering has been becoming critical as products are becoming smart, connected, and intelligent. HCL ERS partners with 65 of the top 100 global R&D spenders, helping them achieve their business objectives.

HCL follows Mode 1-2-3 strategy (Mode 1: Core Services; Mode 2: Next-generation Services; Mode 3: Products and Platforms) to support client transformational journeys and digital engineering is a part of Mode 2 portfolio. Mode 2 enables clients’ digital journey through insight-based, experience-centric, and outcome-driven integrated services that leverage next-generation technologies. Other Mode 2 offerings include Digital & Analytics, IoT WoRKS (Internet of Things), Cloud Native services, and Cybersecurity and GRC services. Mode 2 services consist of 20.3% of overall HCL revenue and are growing at 25% CAGR over the last four years.

HCL ERS is also aligned with the three primary differentiating factors of overall HCL enterprise: Culture, Outcomes, and Innovation. It has come a long way from a skill augmentation player to a solution based and innovation partner for clients. It has developed a comprehensive portfolio of solutions (50+) to transform traditional engineering to digital engineering. Overall, HCL ERS has 1500+ patents (150+ patents on IP based solutions) and intends to share risk with the customers through the outcome-based model and risk-reward construct. Several pricing models of its engineering clients are tied to the commercial success of the products. One of the key differentiators for HCL is the ability to offer differentiated engagement models aligned to customer needs. These engagement models include taking over the complete engineering ownership of some of the product lines to truly partnering with them in jointly taking it to the market. HCL also demonstrated several client examples in which it continued R&D and engineering services to the clients during the pandemic without interrupting the timeline, demonstrating its client-centricity, commitment, and adaptability to the new normal. For example, HCL continued to support a large healthcare technology company in the areas of R&D and digital product development during COVID-19 without missing the delivery deadline. HCL has developed a virtual client engagement platform to ideate, communicate, and engage clients for project proposals and discussion in light of COVID-19.

The Bottom Line: Engineering is a vast area spread across several technologies and industry segments– HCL should continue to evaluate the post-pandemic shock and prioritize the engineering segments for the next phase of growth. 

COVID-19 has a mixed effect on engineering services as the R&D and engineering spend on sectors like automotive, aerospace, etc. have taken a hit whereas medical, ISV segments observed growth. As the pandemic shock continues, the economic turmoil and uncertainty in the business environment can limit the growth potential of HCL ERS. Since enterprises are accelerating their digital transformation journey, some of the engineering segments like smart manufacturing, software product engineering, and platform engineering among others will observe more adoption. Some of HCL’s competitors have bolstered their offerings in these segments during pandemic through acquisitions. For example, Accenture continues Industry 4.0 acquisitions whereas Infosys and Cognizant focus on software product engineering specific acquisitions. Similarly, HCL can also bolster its capabilities further through inorganic investments and align its engineering client portfolio accordingly to continue its growth momentum in engineering services.