Engineering Leaders Navigate Pressures to Innovate Faster and Cut Costs Amid Rising Competition

Engineering and R & D functions across global industries face mounting pressure to deliver products faster whilst managing costs, according to a comprehensive survey of 1,500 executives published by Capgemini Research Institute in November 2025.

The study reveals that 44% of engineering leaders believe their organisations risk losing significant market share within five years if they cannot accelerate innovation processes. Even more striking, 48% acknowledge they must reduce costs substantially to remain competitive against emerging market players and startups.

Specific Targets Set for Cost and Time Reductions

Executives surveyed have set concrete targets for the coming two to three years. On average, organisations aim to reduce total product delivery costs by 10%, design and development time by 9%, and production ramp-up time by 8%.

These targets come as 78% of organisations report that costs have increased over the past three years, with over a quarter experiencing significant increases exceeding 15%. Nearly half of respondents noted longer design and development timelines, underscoring the urgency for new approaches.

The automotive sector faces particularly acute challenges, with Chinese electric vehicle manufacturers outpacing traditional automakers in both speed and cost efficiency. European electric vehicle market share held by Chinese brands grew from 0.4% in 2019 to 10.6% by June 2025.

Digitisation and Outsourcing Lead Transformation Strategies

To address these challenges, 76% of organisations are investing in digital modernisation, including cloud-native platforms, DevOps practices, and digital twins. Outsourcing specific engineering activities ranks as the second most adopted strategy, with 74% of organisations using this approach.

The nature of outsourcing is evolving as well. Whilst time-and-materials contracts remain dominant at 72%, interest in outcome-focused models is surging. Performance-based outsourcing and build-operate-transfer arrangements are gaining traction as organisations seek stronger alignment between engineering spend and measurable outcomes.

Approximately 81% of organisations use formal frameworks to guide outsourcing decisions, though only 32% have embedded these frameworks fully into their processes. Revenue-sharing partnerships and joint ventures, used significantly by 19% of organisations, represent the most collaborative end of the outsourcing spectrum.

Agility Initiatives Focus on Digital Tools and Supply Chain Flexibility

Organisations are pursuing multiple strategies to enhance agility. Digital scenario planning tools are being fast-tracked by 40% of organisations, with another 36% in implementation phases. Flexible operational systems rank second, followed by supply chain diversification and product redesign initiatives.

The research identifies limited supply chain visibility as the most significant barrier to agility, cited by 56% of executives. Difficulty reallocating resources across projects or regions follows at 55%, whilst shortage of key talent ranks at 53%.

Tariffs and trade restrictions affect agility for half of surveyed organisations. Geopolitical uncertainty features prominently in executive concerns, with 60% identifying it as a major threat over the next three to five years. Rather worryingly, only 29% believe their organisations are prepared to address such uncertainty.

Technology Investment Patterns Show Geographic Variation

Emerging technologies rank highly on engineering agendas, with 63% of executives viewing digital innovation as strategically important. Artificial intelligence, digital twins, and next-generation materials are identified as the most transformative technologies for the coming two to three years.

Geographic variations in technology prioritisation are substantial. Chinese organisations lead at 81%, followed by the United States at 73%, whilst European organisations trail at 60%. This pattern correlates with China’s stated ambition to become a global science and technology leader by 2035, supported by a 48% increase in national research and development spending since 2020.

The aerospace sector presents an interesting case study in technology application. Airbus and Boeing are exploring thermoplastics for smaller jet production, enabling reheating, reshaping, and ultrasonic welding without rivets. Industry ambitions extend to production rates of up to 100 jets monthly for each manufacturer.

Investment in Sustainability Grows Despite Cost Pressures

Despite intense cost pressures, 68% of organisations plan to increase sustainability-related investments in engineering over the next 12 to 18 months. Only 2% expect reductions.

Sustainability integration shows measurable progress. The proportion of organisations incorporating sustainability as a key component of product design processes rose from 22% in 2022 to 58% in 2025. Regular environmental impact assessments increased from 26% to 43% over the same period.

Managing cost pressures linked to greener materials presents the primary challenge, cited by 63% of executives. Sourcing sustainable materials at sufficient scale follows at 60%, whilst redesigning existing products for improved sustainability concerns 55%.

Chinese organisations demonstrate particularly strong commitment, with 79% planning sustainability investment increases, compared to 46% in Nordic countries.

Multiple Barriers Constrain Progress

Supply chain constraints represent the most frequently cited barrier to improving cost, speed, and scale, mentioned by 54% of executives. Lack of skilled talent follows closely at 53%, whilst organisational resistance to change affects 49%.

Legacy systems and outdated technology impede progress for 48% of organisations. Weak innovation culture, regulatory challenges, and insufficient budgets each concern more than 40% of respondents.

The research reveals sector-specific patterns in cost and timeline evolution. Telecommunications organisations report notably lower rates of cost and time-to-market increases compared to other sectors, suggesting some industries are better positioned to manage current pressures than others.

Artificial Intelligence Reshapes Engineering Workflows

More than 84% of organisations plan to increase investment in AI for engineering and R&D over the next two to three years. Executives anticipate AI will deliver 20-50% improvements in outcomes including speed to concept, time to market, productivity, product value, and cost reduction.

The most significant AI impact is expected in maintenance and support, documentation and compliance management, and research and concept development. Over 75% of executives expect substantial enhancements in these areas.

China and Japan show the strongest momentum, with 92% of organisations planning to increase AI investment in engineering and R&D, whilst the Netherlands and the Nordics show the least momentum at 62%.

Talent Remains Critical Despite AI Advancement

Despite enthusiasm for AI adoption, executives continue to value traditional engineering skills and human ingenuity. Only 15% believe that AI can replace the problem-solving and creativity of human engineers and designers.

Approximately 58% of executives report a shortage of engineering graduates with AI skills. Yet only 48% say they are actively investing in AI-focused upskilling and reskilling programs for their engineering workforce.

Half of executives cite talent shortages as a major challenge to scaling AI in engineering and R&D. Other significant barriers include reliability and accuracy concerns (53%), integration challenges with existing systems (50%), and organisational resistance to change (49%).

Climate Risks Demand Increased Focus on Resilience

Executives recognise that engineering functions are exposed to a range of climate-related threats. Supply chain disruptions lead climate-related concerns at 69%, followed by infrastructure damage and loss at 63%.

Transition risks, triggered by shifts in policy, technology, and consumer demand due to the shift to a low-carbon economy, concern 54% of executives. Raw material scarcity affects 49%, whilst energy insecurity concerns 30%.

These findings indicate that engineering transformation success increasingly depends on organisations’ ability to orchestrate internal talent, partner ecosystems, and global capabilities whilst deploying emerging technologies strategically. Those that navigate these challenges effectively position themselves to compete in an environment where speed has become as critical as innovation quality.

The findings arrive as Ford CEO Jim Farley acknowledged in September 2025 that Chinese competitors are “completely dominating” in electric vehicles, citing their combination of great innovation at very low cost. Similarly, Pfizer CEO Albert Bourla noted in October 2025 that China’s dramatic speed, cost and scale have triggered a shift in the global competitive landscape for biopharma.

The research indicates that organisations must redesign engineering strategies to focus internal talent on high-impact work, whilst tapping into partner ecosystems, AI, and global capabilities. Those that successfully balance cost reduction with innovation acceleration, rather than treating them as competing priorities, are positioned to lead in the next era of engineering.