Digital engineering reloaded: Building differentiated advantage in product development

Digital engineering technology is unleashing the potential for major advances in industrial product development, from the concept phase through design and testing. The technology promises faster development cycles, lower costs, and better new products, giving manufacturers that embrace digital engineering a competitive edge over rivals using traditional methods.

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Digital engineering reloaded Building differentiated advantage in product development


About the authors

Beirut Fadi Majdalani Partner +961-1-985-655 fadi.majdalani Berlin Nils Melcher Principal +49-30-88705-819 nils.melcher Chicago Evan Hirsh Partner +1-312-578-4725 evan.hirsh Düsseldorf Dietmar Ahlemann Partner +49-211-3890-287 dietmar.ahlemann

Milan Luigi Pugliese Partner +39-02-72-50-93-03 luigi.pugliese Francesco Lucciola Principal +39-02-72-50-91 francesco.lucciola Moscow Steffen Leistner Partner +7-985-368-78-88 steffen.leistner Munich Jörg Krings Partner +49-89-54525-574 joerg.krings Jan Bakker Principal +49-89-54525-616 jan.bakker

New York Scott Corwin Partner +1-212-551-6578 scott.corwin Paris Rich Parkin Partner +33-1-44-34-3131 rich.parkin Shanghai John Jullens Partner +86-21-2327-9800 john.jullens Stockholm Fredrik Vernersson Senior Executive Advisor +46-8-506-190-62 fredrik.vernersson Zurich Alex Koster Partner +41-43-268-2133 alex.koster

Dietmar Ahlemann is a partner with Strategy& based in Düsseldorf. He is a member of the firm’s European IT practice and focuses on IT strategy and IT transformation in engineered products and services (EPS) industries. Francesco Lucciola is a principal with Strategy& based in Milan. He is a member of the European engineered products and services practice (EPS) and focuses on strategy setting, operation improvements, and technology transformation. Nils Melcher is a principal with Strategy& based in Berlin. He is a member of the European engineered products and services (EPS) practice and focuses on IT technology innovation and process transformation. Francesco Baldisserri is a senior associate with Strategy& based in Milan. He is a member of the European engineered products and services (EPS) practice and focuses on the operations sector.

This report was originally published by Booz & Company in 2013.
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Executive summary

Digital engineering technology is unleashing the potential for major advances in industrial product development, from the concept phase through design and testing. The technology promises faster development cycles, lower costs, and better new products, giving manufacturers that embrace digital engineering a competitive edge over rivals using traditional methods. In a fully digitized engineering environment, concept development teams tap data from telematic systems on products already in the field to develop new models that perform better and create more value for customers. Advanced collaboration software and content management systems make the design process more efficient by capturing knowledge from every development project and making it easily accessible to engineers throughout the company. Substituting digital simulation for physical prototypes cuts time and expense in product testing. Manufacturers in almost every industry can capitalize on these technologies. But executives should understand that cultural and organizational change is as important as technology in reaping the full benefits of digital engineering. Our research shows that the most successful digital engineering programs drive change in three critical areas: • New tools that facilitate “market-back” concept development and knowledge capture and reuse • New collaborative product design systems that enable virtual testing capabilities • New organizational structures, processes, and tools that foster a new approach to engineering




As global competition intensifies, many industrial manufacturers are trying to set themselves apart through innovation. In this environment, superior product development capabilities become a key differentiator. A new wave of digital technologies offers a way to establish and sustain this critical competitive advantage. Digital engineering holds the power to optimize innovation, cost, quality, and speed along the product development value chain. Strategy& research shows that several of the biggest OEMs and industrial manufacturers are using digital engineering to drive value and efficiency in key areas such as concept development, knowledge capture and reuse, product design, and testing. Their experience demonstrates how these new technologies can accelerate product development and reduce costs. At the same time, digital tools create a more flexible, market-driven engineering function (see “Product Development, 2013 and 2020,” page 6). The key components of this evolution are telematics, collaboration and content management software, and digital simulators, which together can create fully integrated product development processes that leverage field data, prior experience, and virtual testing to create new products that are truly different, innovative, and tailored to customers’ needs. With telematics, manufacturers capture reams of real-world information on the performance, reliability, and durability of products already in the field. That information helps engineers design new products that create more value for customers. Collaboration software facilitates seamless, around-the-clock work by internal and external teams in design centers across the world, speeding up the development process. Content management systems, meanwhile, reduce the need to “reinvent the wheel” by making a manufacturer’s



accumulated storehouse of product development knowledge and experience available for reuse by engineers throughout the company. Virtual simulation, meanwhile, reduces the need for physical testing of prototypes, one of the most expensive and time-consuming parts of the product development process.



Product development, 2013 and 2020
As more companies adopt digital engineering, the future of industrial product development is taking shape. By 2020, we believe the process might look as follows: • A product concept is crafted by a cross-functional team of engineers and marketers who tap real-time sales, cost, and performance data to define a first set of characteristics. Engineers begin the design process by entering specifications in the product life-cycle management (PLM) system, an information technology system that supports product development from concept to manufacturing. The PLM system proposes virtual prototypes based on existing components and estimates costs. Engineers decide which elements of previous designs to reuse, and seamlessly assign the remaining components to internal or external designers. A global design team works on the product around the clock, passing work electronically from one time zone to the next. A digital mock-up is made available to all team members, with all changes synchronized. • • Testing is conducted almost exclusively by virtual simulators. Physical testing comprises less than 10 percent of product trials, mostly for final validation and regulatory compliance. • The virtual prototype moves to manufacturing, which uses simulators to design production processes. The entire product development process is completed in half the time it took 10 years ago.

The efficiencies created by digitization contrast sharply with the low-tech approach used by most industrial manufacturers today: • Marketers currently define the new product with little input from engineers, using sales, cost, and performance data that is often outdated or based on limited sampling from the previous version of the product. Engineers rely mainly on their own prior experience to estimate costs, because current systems don’t make broader cost data available. Without a deep database of existing component designs, engineers reuse little prior work and often duplicate the efforts of others in the company. High-level conceptual work is done in a single design center, with designers in low-cost countries mainly handling routine tasks like detailing rather than carrying out end-to-end designs. Rudimentary systems for sharing CAD drawings make it hard for engineers in different locations or at suppliers to collaborate. About 70 percent of the product development process is devoted to testing physical prototypes.



Concept development, knowledge capture, and reuse

Digital technology enables manufacturers to collect detailed, comprehensive information about their products: how customers use them, the conditions they operate under, how well they perform, and what problems they encounter. For example, telematic systems on vehicles from Caterpillar, Claas, and others transmit streams of data on fuel consumption, road conditions, operating hours, and breakdowns. Manufacturers can use this information to design new models that solve real-world operating problems and offer new features that customers need. Data collected through digital technologies also can drive long-term efficiencies in product development. Advanced content management systems assemble field data and knowledge gleaned from a manufacturer’s various product development projects, making it easily accessible to engineers across the company. These knowledge databases underpin company-wide design standards based on actual experience — what works and what doesn’t — and give engineers wrestling with design challenges access to the know-how of others who have already tackled similar problems. Rather than starting from scratch with each new product, engineering teams build on the company’s existing knowledge base. The result is fewer false starts, fewer repeated mistakes, and faster, better product design. Here’s how these technologies might work together to produce shortand long-term benefits: Suppose telematic data from a vehicle in service shows that an engine valve tends to malfunction when the vehicle operates continuously in cycles of more than six hours. This alerts engineers working on a new model to the problem. They discover that the material used in the valve tends to warp at the higher engine temperatures that result from continuous operation. So they digitally test a variety of materials until they find one that can withstand the high temperatures. The improved valve is incorporated into the new product design. At the same time, the knowledge acquired about the performance of various materials at high temperatures goes into the



company’s product development database, making it available to other engineers who might encounter a similar issue. Despite these benefits, our research reveals that many manufacturers have not yet optimized their knowledge capture and reuse. Although more companies are making it easier for engineers to get information such as previous product designs, many have no formal mechanism for sharing the problems encountered and lessons learned during design projects, with the result that mistakes recur. Engineering teams, for their part, often don’t take advantage of the knowledge capture tools their companies provide. And there are few systematic programs for collecting market feedback by tracking product breakdowns and other performance indicators.



Product design and testing

Building on the knowledge captured digitally, manufacturers can drive down product design costs and cycle times with virtual simulation and collaboration tools. Virtual simulators create value by reducing the number of physical tests needed to validate a new product. Simulators provide early warnings about design flaws that in the past wouldn’t have become apparent until much later in the product development cycle, when they caused a costly physical test failure. Although simulation will never eliminate the need for physical testing completely, software now can replicate the operation of all major vehicle and engine systems, such as combustion and electronics. Developed by in-house programmers at considerable expense in the past, simulation programs are starting to become available in off-theshelf formats from suppliers. Senior managers at industrial manufacturers confirmed to us that digital simulations significantly reduce the number of physical test failures, a major product development expense. They also said virtual testing is particularly appealing for lower-volume and faster-life-cycle products. The financial benefits of simulation go beyond the operating expenses a manufacturer saves by building and testing fewer physical prototypes. Capital expenditures also decline because the company needs fewer of the large, expensive facilities where physical testing takes place. We interviewed leaders at a major industrial manufacturer that was one of the first to tap the potential of virtual simulation. The company shifted the focus of its product development efforts to the earlier stages of the process, where digital technologies such as CAD and virtual simulation generate significant efficiencies. It pushed costlier physical testing as far back as possible in the process. Reducing physical tests cut the time and expense devoted to building and testing prototypes,
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which previously consumed 70 percent of the company’s product development resources. Expensive physical test failures become cheaper virtual flops. With most of its resources now focused on digital processes, the company has substantially cut product development time and expense (see Exhibit 1, next page). Digital collaboration tools also reduce development times, by making it possible for engineering teams around the world to work continuously on a project without downtime. For example, the Pratt & Whitney ESW tool enhances productivity through new workflows, a centralized content management system, automated file transfer in a variety of formats, and advanced search techniques that make content easier to find (see “Knowledge Capture at Work,” page 12). These tools also help manufacturers take greater advantage of product development centers in low-cost countries. For example, the General Motors Technical Center in India (GMTCI) was originally envisioned as a facility that would put the finishing touches on designs conceived at the company’s other product development centers. But it has emerged as a major source of innovation in its own right, thanks in large part to digital tools that enable the center’s engineers to tap into and build on the advanced knowledge and experience of their counterparts at GM engineering hubs around the world. In 2011, GMTCI handled the entire development process for a new version of the XSDE Smartech diesel engine used in the Chevy Beat.



Exhibit 1 Up-front simulation and analysis streamline product development: Example from surveyed company

• The company used 70 percent of its development resources (time and cost) for hardware testing and only 30 percent for design analysis; the goal was to halve development resources by reversing this ratio to 30/70 • The goal was achieved by increasing up-front analysis and use of simulation tools, reducing later failures and reiterations
Seven-step product development Virtual simulation 1 Idea generation 2 Concept definition 3 Stable design 4 Performance validation 5 Durability assessment • More units are built to assess system reliability and durability 6 Limited production Physical testing 7 Manufacturing

• Charter approval goes to marketing group

• Cross-discipline • Stable design is • Performance is team is formed completed validated and concept • Models are refined • A few testing defined to assess whether units are built (6–12 • Simulations take charter’s place (virtual build, requirements are prototypes) CAD, efficiency, met • Test results are emissions, stress • Limited testing is used to confirm tests, etc.) conducted (to capabilities and validate simulation assess statistical variations in the model) performance 90–95% virtual simulation vs. 5–10% physical testing (potentially only for parts)

• Limited • Full manufacturing production release occurs begins • Production and quality verification are undertaken to assess ability to manufacture

Many more analysts involved in the new setting

Analysis is still commonly used (60% analysis vs. 40% testing)

Source: Interviews with industry experts; Strategy& analysis



Knowledge capture at work
Aircraft engine manufacturer Pratt & Whitney formalized knowledge capture and reuse through a methodology it calls engineering standard work (ESW). The concept ties engineering work to proven practices established through analytical tools and empirical testing. The company organizes its product development operations as an “engineering factory,” with workflow diagrams choreographing the activities of engineering teams that perform defined functions set forth in procedural guidelines. Using a Web-based tool from an outside software vendor, Pratt & Whitney consolidated and stored engineering design knowledge in a central online database. The tool gives engineers across the company easy access to this repository of the accumulated knowledge and experience of Pratt & Whitney’s worldwide product development team. It also promulgates a standard process that improves the quality of design and reduces the need for reworking. Since Pratt & Whitney adopted the plan, product development costs, cycle times, and quality problems have declined. The company estimates that it saves US$4 for every dollar spent on ESW. Engineering change orders from the production line have dropped by more than 50 percent, and Pratt & Whitney now addresses 70 percent of its design quality issues in the product development process.



Organization, processes, and tools

Technology alone won’t turn product development into a competitive advantage. To realize the full potential of digital engineering, manufacturers must adopt the right cultural norms, organizational structures, processes, and tools. Culture and organization Cultural change is as critical to digital engineering as software and simulators are. Executives must promote a standardized approach to work among engineers accustomed to less formal practices. Engineers may prefer to custom-design components, rather than search a database for templates. They may also resist tailoring their design specifications to the requirements of a centralized repository for others to use. These tendencies can thwart efforts to create a virtuous cycle of product development, in which each new project benefits from and enhances the company’s body of expertise. Therefore, executives championing a digital engineering initiative must wage a battle for hearts and minds. At Pratt & Whitney, for example, managers spent many hours in dialogue with engineers, refining the ESW system and winning the buy-in necessary to make it work. Over the longer term, engineering managers must monitor and enforce compliance with protocols such as the following: • Start every new project by searching the database for reusable designs. • Define every new component in the standardized terms the system requires. • Feed back into the system all relevant data from every project. It’s also important to preserve consistency in critical systems (electronics, combustion, etc.) that are used in many different products
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Engineers may prefer to custom-design components, rather than search a database for templates.

throughout the company’s portfolio. A “cross-product architect” should oversee such systems — with authority to prevent product development teams from making alterations that threaten the coherence of the system. Processes To facilitate digital engineering, manufacturers will have to rethink established product development processes. For example, engineering groups oriented toward physical testing must shift their emphasis to up-front simulation. Centralized oversight of product development is critical to ensuring that the knowledge gleaned in each project is fully leveraged for other products. Tools Information, communications, and technology executives should coordinate the purchase and deployment of digital engineering tools to ensure uniformity and compatibility across the organization. In addition to virtual simulators and other engineering-specific tools, manufacturers will need a full complement of collaboration systems — such as videoconferencing — to facilitate teamwork among engineers in various locations and outside suppliers. Our research indicates that commercially available, off-the-shelf software packages are eclipsing custom-made programs in digital engineering. Commercial tools make collaboration easier, particularly with outside suppliers, by simplifying data exchange, training, and cross-group tasks. And as the pace of innovation quickens, companies can’t afford to wait for programmers to develop custom software when off-the-shelf programs that work just as well are readily available.




Digital engineering is transforming every aspect of industrial product development. New technologies improve capabilities in concept development, knowledge capture and reuse, and product design and testing. Data gathering tools such as telematics give manufacturers information they can use to improve products and tailor designs to customers’ needs. Collaboration systems and virtual simulators cut product development costs and cycle times. Manufacturers that harness the full potential of digital engineering can turn product development into a powerful competitive differentiator. But it takes more than technology — manufacturers must also make the cultural and organizational changes needed to capitalize on digital engineering.



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This report was originally published by Booz & Company in 2013.
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