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Page 1: Trends for Thriving Twenties...underlying agile principles and lean development. For example, when communicating efficiency targets, let each team decide on their own action plan for

© Vector Consulting Services and Christof Ebert, 2020

Trends for Thriving Twenties:

Industry Survey and Action Stimulus

Vector Consulting Services, 1 February 2020

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Industry Survey and Action Stimulus

© Vector Consulting Services and Christof Ebert, 2020

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Table of Contents

Changing Patterns, Changing Needs ....................................................................................................................................................... 3

The Magic Triangle of Cost, Quality and Innovation ............................................................................................................................... 4

Action 1: Reduce Cost with RACE ............................................................................................................................................................ 5

Action 2: Quality First, Consistent and Continuously ............................................................................................................................. 6

Action 3: Focus on Innovation .................................................................................................................................................................. 6

A Necessary Condition: Upskill and Reskill for Success ....................................................................................................................... 7

Winning with ACES .................................................................................................................................................................................... 8

Acknowledgement ..................................................................................................................................................................................... 9

Recommended and related content .......................................................................................................................................................... 9

References ................................................................................................................................................................................................ 10

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ABSTRACT: The four ACES Autonomy, Convergence, Ecology and Services have conquered all high-tech industries. Yet,

priorities are heavily shifting with the weakening economic climate. Autonomy has started its slow-down along the hype cycle, while

ecology gets to speed. Vector has surveyed industry leaders from across the world. This report provides survey results as well as

hands-on recommendations for engineering and learning from our global consulting projects. With the worsening economic climate,

it underlines the balance of efficiency, quality and competences to remain a winner even in stormy weathers.

Changing Patterns, Changing Needs

Will the world turn ever faster? Will there be another thriving Twenties, such as in the previous century? And with which results?

For more than one decade, companies worldwide have been very successful and in continuous growth. Since mid-2019 the global

economy is darkening. Economy and even society are clearly at a turning point. Simply continuing as before is not an option

anymore. At the same time, ecology has become a major decision driver in the western hemisphere, but also in some regions of

Asia.

Amid such global economic trends, Vector Consulting has been asking industry partners worldwide to provide their view on industry

challenges. We have been asking over 2,000 decision-makers in companies in worldwide business-to-business (B2B) context on

the top three challenges that they face. Figure 1 provides the results in a nutshell, highlighting increasing struggle to compete on

cost and quality, with a clear priority two on innovation.

Figure 1: Challenges as perceived by industry experts in Vector annual survey.

We have also spoken with leading companies to identify where the technologies are heading, and which topics are relevant in the

short-term and mid-term. Based on the results, we outlined concrete recommendations with many inputs from Vector international

consulting projects.

Technology trends are converging across industries. What used to be a clear-cut differentiation can be summarized today by the

quest for ACES, i.e. autonomous systems, convergence, ecology and services. Business trends are similar in developed economies

as well as emerging economies.

In the years to come, global economic conditions are predicted lower than they have been during past years. This holds specifically

for Asia, which in past years always enjoyed a double-digit growth rate. Yet, industries and regions worldwide are following these

reduced economic forecasts, and already reducing work force in sectors such as automotive.

Priorities are heavily shifting, due to the weakening economic climate and increasing focus on ecology. What remains stable is the

need for fast growth in software competence as the underlying driver of these four ACES. Innovations, such as energy efficiency

and autonomous systems, require complex systems based primarily on software functionality. Not only the growing complexity has

to be managed. A safe behavior must always be ensured. Global competition and fast release cycles enforce continuous efficiency

improvement and cost optimization. Strong mechanics and production giants are moving at high speed towards IT and software-

based competences. Some Vector clients in automotive and other industries have reduced workforce in traditional segments by

thousands, while at the same time hiring thousands of new software experts. Such major competence shift in such a short time is

unequaled in industry history.

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In view of these, business leaders need to reinvent their companies for the future vitality while ensuring performance for the present.

The results in form of this White Paper are openly available. Benefit from our project experiences and utilize our proposed actions

to survive and thrive in the next decade.

The Magic Triangle of Cost, Quality and Innovation

Participants in our 2020 Vector survey observe three significant changes. Cost and Efficiency have emerged as the single most

relevant short-term challenge, indicating the need to succeed in a fast-changing world with unclear business drivers. At the same

time, Quality is moving further up compared to our last-year survey as short- and mid-term target. Obviously, the threats of product

liability and global visibility of insufficient quality have reached technology companies. Time is gone when software could mature

with the early adopters at a bleeding edge. What is delivered must be mature. Innovation obviously matters for all companies.

Figure 1 captures the results of recent Vector survey. The horizontal axis provides short-term challenges, while the vertical axis

shows more mid-term obstacles. Each reply allowed up to five challenges in both dimensions, adding to the sum of 100%. Thanks

to a response rate of nearly 5% covering different domains, the survey well represents different B2B business models and diverse

regions in the world.

According to the Vector industry survey, companies struggle with three major forces along the magic triangle:

> Cost and Efficiency: i.e., development cost, price pressure, rework, IT effort

> Quality: i.e., functional safety, cybersecurity, governance, compliance

> Innovative products and Digital Transformation: i.e., service orientation, product management, business processes, convergence of IT and embedded technologies.

Cost first is a recipe for failure. A simple example is cancelling trainings for engineers for cost-savings. As a result, they lack the

necessary energy and know-how to master the crisis. A viscous circle will start.

Figure 2 shows this negative pattern which we currently see growing. With cost pressure and cost reduction programs, innovation

and quality suffer. At the same time, good people start looking for alternatives, which further reduces innovation and competences.

Rework and delays mean more cost, which deepens cost pressure. It is a downward moving cycle that many companies currently

feel. Red-ocean scenarios will inevitably grow if companies focus too much on cost. In fact, we have seen several once strong

players drowning in cost savings programs starting last year, and now being unable to recuperate along the necessary software

innovation. Once big players such as Thyssen-Krupp need to sell valuable assets just to survive.

Mastering this magic triangle requires a strong balance of energy with an agile approach. They are “time boxing” and “expense

boxing” with a restrictive portfolio management to avoid wasting scarce resources in firefighting. We have identified

recommendations for these themes in our projects and numerous interviews with industry experts over the past months.

Figure 2: The vicious circle driven by cost pressure at the expense of competence and quality.

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Action 1: Reduce Cost with RACE

Competition is getting tougher. Many industries and businesses started feeling the pain of cost-cutting measures. Hiring might be

stopped, but not so competition. And neither do your rivals. This is where a higher efficiency and productivity come to play.

Processes and technologies are the shining light, with which your company will be more efficient and powerful.

Vector advocates RACE from many client projects which went beyond mere agile transformation. RACE stands for “Reduce

Accidents, Control Essence”. Based on insights, such as Fred Brooks’ “No silver bullet”, we found over two decades ago in our

cost reduction projects that there is not the one lever which is way better than anything else. The silver bullet is a myth and belongs

to phantasy novels. RACE is reality. Accidental complexity must be reduced. This means less waste, less rework, less interface

frictions, less “not invented here”, less “not in my own backyard”, less “wash me but don’t make me wet”, less “ping pong across

functional silos”. Control essence means focus on value, focus on client, focus on your customer’s customer. RACE makes you

faster, and more flexible.

More Scalability and less complexity are major needs to benefit from innovation and underlying legal demands across platforms

and even industries, while achieving cost reduction. Often, we hear sales people complaining at perceived high cost, while they are

the originators in their push for top line, while forgetting their own bottom line impact.

Figure 3 shows from a recent agile transformation project what RACE means. The major message: It is not yet another complex

framework such as SAFe. Rather, it means to tailor agile principles around the specific needs and culture of a company. No two

agile projects are the same. Agile also applies to an agile transformation, which explains why the frameworks do not work. They

replace a once heavy CMMI with a now heavy new bureaucratic framework. A major lever is complexity control.

The past years have accumulated lots of features in variants and versions which must be trimmed down. Engineering and product

managers must evaluate life-cycle costs and productivity. Our benchmarks with leading OEMs and suppliers indicate that software

productivity in terms of function points but also in terms of defects is degrading. Task forces have grown in the past two years, as

focus was too much on features and not enough on complexity management and processes. We recommend allocating

requirements and features to life-cycle cost and optimize platform-based reuse.

Optimize lifecycle and connect engineering with other functions in an agile team. It is not enough to only look to development,

because classic development is disappearing. Development, operation and services will become one continuous process. Agile

development methods such as Scrum have long penetrated the industry, yet often appear as a slogan than a way of life. Our

experience at Vector Consulting Services show many companies want to improve efficiency looking forward. However, only a third

of them are satisfied with their previous results. Why? Efficiency projects aiming at productivity enhancement and overheads

reduction fail bitterly and costly mainly due to undisciplined and inexperienced change management.

Empower teams to suggest a viable and sustainable balance between cost, quality and innovation. Train employees in the

underlying agile principles and lean development. For example, when communicating efficiency targets, let each team decide on

their own action plan for reducing waste, rework and interfaces. Targets should be measurable, say sales per developer, lead-time,

fault detection rate. Performance should be continuously evaluated to identify wins and/or gaps. Set concrete improvement targets

on a quarterly basis.

Invest in new technologies and the necessary competencies. Use novel technologies for innovative and appealing services

and more agile service delivery models, such as predictive maintenance and individual user interaction. Examples include systems

modeling and simulation, DevOps, micro-services and containers to master complexity, augmented reality, cloud solutions for

innovative products and for engineering. Enhance with the relevant design and testing approaches.

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Figure 3: Agile Scaling in Practice

Action 2: Quality First, Consistent and Continuously

Quality remains the main challenge across industry. As we have outlined above, a “cost first” approach might cure some fires, but

at same time might also start the next fires. During the past crisis in 2008/9 many companies have accumulated technical debt

which eventually killed entire products. Prominent example are technology giants such as Alcatel, HP and Motorola, which in that

period looked only to cost reduction and eventually failed.

Combine quality and cost reduction. Agile is the keyword, connecting team efficiency with empowerment and thus reduced

waste. Take requirements churn. Most requirements are incomplete and wrong. Yet they are taken without much review to start

design. In turn we face change rates way above what is necessary which is a major cost driver in almost all product development.

Control deliveries flexibly yet thoroughly with Continuous Everything. Churning out an existing product reliably and well is

one thing. However, creating an innovative product within a shorter period, under tremendous amount of competition, with highly

sophisticated compliance requirements and at top quality, is another story.

Balance quality and cost while relating them to architecture and design decisions. Often, we face clients which do not have

coherent strategy how to implement cybersecurity or functional safety end-to-end. Too much effort is thrown on testing as a safety

net, which is extremely expensive. Test should be the fallback but not major quality driver. Most test cases are unnecessary as can

be seen when looking got test case effectiveness. Testers overlay multiple approaches without overarching test strategy. For

instance, we face heavy focus on integration but no criteria for test case selection and coverage. Unit test is growing but static

analysis is hardly applied, while being much more sustainable. Agile quality methods such as test-driven development (TDD) and

test-oriented requirements engineering (TORE) help to focus test on where it is necessary.

Make cybersecurity a key need. Convergence, digitalization and ever-growing use of Over-The-Air solution introduce new set of

challenges, with respect to information security, robustness and usability. The more we share and connect, the more exposed we

are to cyberattacks, which tremendously impact our business models and product liability. Inadequate cybersecurity takes its huge

toll on functions and safety. For example, use risk-based security engineering to address multiple models of operation from normal

to attack and emergency. Do not copy-paste methods from standards, as this mostly is heavy and not effective. Use experienced

consulting solutions instead to benefit from best practices across industries.

Action 3: Focus on Innovation

Germany and Korea are ranked highest as the most innovative country in the world by Bloomberg. There is a lot to learn from these

countries – but also a high risk because both face increasing challenges from aging population and too much legal governance. In

both countries, the automotive industry has been leading innovation for almost two decades with stimulus to many other industries.

Slowing down the automotive sector as intended by some forces will weaken the innovation strength.

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Innovative products and digital transformation drive the competitive edge and thus the existence of any business or economy. The

best examples of innovation and technology hub, such as Singapore, Israel or Silicon Valley show that innovation can only be

created and thrive with a supportive eco-system and risk-taking mentality. Digital transformation and services innovation can fast

move upwards with the right organizational structure, the state-of-the-art tool and infrastructure. Firstly, in terms of organizational

structure, it requires radical change in management style, hierarchy and agile culture for employees. Secondly, management and

employees should embrace the use of new software tools to increase productivity and ideation. Lastly, digital infrastructure is

admittedly the foundation of innovation and transformation. The lagging infrastructure in Germany, for example, is a direct threat to

its future competitiveness.

Lead in agile innovation. For a long-term success and being prepared for disruptions, strategic investment in education,

coordination between universities and private companies and policies to attract globally-mobile entrepreneur and top tech talents

are the must-haves. Create a culture and mindset of fearlessness – to embrace new ideas, new approaches and risk-taking

mentality. Why is it so important to be fearless? Because it drives innovation. It redefines standards of the future. It allows your

talents to learn, grow and flourish. It attracts the right skills and talents for this transformation from manufacture-based innovation

to services innovation.

Embrace diversity. Not only for the sake of ethics. Diversity increases the capacity for innovation and make your business more

effective in the long-run. Gender, ethnicity and sexual orientation are obvious sources. But diverse work experience and education

should also be more appreciated.

Extend business model stepwise towards user integration and eco-systems. Move from classic functional split towards

integrated business processes. Model business processes, functionality and architecture from a systems perspective, while

ensuring robustness and security. Develop innovative services for your products, by linking products with company IT to intelligent

services and business models. Examples include predictive maintenance, adaptive configurations and multisensor fusion for

enhanced functionality and user experience.

Invest in new eco-systems that connect your entire value chain from suppliers to end-users. Stimulate customers, vendors

and their own employees with creative methods to develop the few but crucial value features that make your product unique. Use

targeted benchmarks and continuously learn from other companies.

A Necessary Condition: Upskill and Reskill for Success

Competence matters and in fact is the necessary pre-condition to succeed with growing challenges across ACES. There is no

doubt, that with all collected pieces mentioned above, competencies, new skills and knowledge management are big challenges for

companies and industries. Many companies are reportedly unable to fill positions in cybersecurity, artificial intelligent or Big Data

analysis. The technologies themselves will be evolving and relatively easy to exchange, but the workers capable of using them will

be scarce.

Upskill is to adopt new skill for one’s current job. Reskill is to take up new skills for a completely different position. People’s

preferences for what and how they like to learn have implications for companies and economies. For example, Millennials, who

recently entered the workforce, are looking for challenging assignments that provide not only rewarding experience but also

purposes. They are eager to learn and prefer a more digital learning approach.

With limited costs at hands, organizations will be changing the way it develops competencies and expertise. Instead of top-down

method where trainings will be organized for the staffs, it is necessary to build a self-driven, agile and digital learning organization.

This translates to (1) Self-driven learning culture, (2) Agile mindset and (3) Moving to digital trainings.

No employee will master these set of competences alone. Global collaboration will further evolve and thus demand a sound mix of

technology (hard) competences and collaborative (soft) competences.

Be people-dependent to mature products and product management in an ever-changing environment. Appropriate data,

sanitization and debiasing would be required. Organization would need to build a provenance into the models they train from the

data. The models along with the data used for training need to be curated and labelled.

Create a culture of upskilling. One of the two pillars of the Toyota way is continuous improvement – challenge what you know

and do and always search for improvements. Best-in-class companies encourage employees to adopt a continuous-growth mindset

and learn on the job, provide opportunities for people to take time off for learning, and have managers act as training coaches.

Invest in the future. Collaborate with educational institutions and agencies to launch early-education initiatives to motivate young

people to consider entering in-demand careers.

Offer different ways of learning for personal development. Take full advantage of emerging learning techniques, such as

through mobile apps, web-based, podcast, webinar, blended learning, E-learning or even game-based learning.

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Employ common platforms, social events and opportunities to encourage knowledge transfer and best-practice sharing.

These platforms act as incubators, where ideas appeared, discussed and implemented.

Winning with ACES

The magic triangle of Competitiveness, Quality 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.

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, Convergence, 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.

Yet, priorities are heavily shifting with the weakening economic climate. Autonomy, last year still a number one shooting star, has

started its slow-down along the hype cycle. At the same time ecology gets to speed with a high focus especially of the young

generation on our future and the sustainability of our earth. Convergence levers the two forces of competitiveness and innovation

towards sustainable business prospective for technology companies. Services are here to stay. Not really sexy, but highly money-

printing, if done well. Kano model at its best because a good service on top of a mediocre product can be a real excitement. Give

a 24/7 online support and you earn a big “wow” if you deliver.

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 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 strict 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.

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Figure 4: Prepare for the Future: ACES makes Digital Winners

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 opens the doors for technology innovation, new business models, and

collaboration schemes across industries. Multimodal mobility will connect previously separated domains like cars and public

transportation. New services such as sharing service 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. This system is made possible with cloud access, over-the-air functional upgrades, and high-band-width

access to map services, media content, other devices and surrounding infrastructures.

Your future is based on your competitiveness – both corporate and personal. It is not those to succeed who now shrink engineering

and IT innovation, but those who navigate well in the magic triangle of quality, competitiveness and innovation. Thinker, politician

and novelist Goethe has got it straight: “Knowing is not enough; we must apply. Willing is not enough; we must do.” This is the

wake-up call to use innovation and guts to stay competitive amidst a meager economic outlook. Business history is littered with

the skeletons of those who neither takes ownership nor risks.

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.

Recommended and related content

[1] Agile Scaling – Scaled Agile

[2] Convergence Drvies Competitiveness and Innovation

[3] Agile Systems Engineering at Ford

[4] Benchmark Global Product Management

[5] Scaling Agile Development

[6] The Automotive Safety Trends: ISO26262 2nd Edition, SOTIF, Security and Agile

Further studies and readings by Vector Consulting: www.vector.com/consulting-mediacenter

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References

[1] Jamrisko, Michelle, Lee J Miller and Wei Lu: These Are the World’s Most Innovative Countries.

www.bloomberg.com/news/articles/2019-01-22/germany-nearly-catches-korea-as-innovation-champ-u-s-rebounds

[2] Ebert, Christof and Alpana Dubey: Convergence of Enterprise IT and Embedded Systems. IEEE Software, ISSN: 0740-7459,

vol. 36, no. 3, pp. 92-97, May 2019

[3] Ebert, Christof and C.H.C. Duarte: Digital Transformation. IEEE Software, ISSN: 0740-7459, vol. 35, no. 4, pp. 16-21, Jul/Aug

2018.

[4] Ebert, Christof and Maria Paasivaara: Scaling Agile. IEEE Software, ISSN: 0740-7459, vol. 34, no. 6, pp. 98-103, Nov/Dec

2017.

[5] Ebert, Christof and Steve 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

Authors

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].

Anh Kim leads the marketing competence at Vector Consulting Services. She brings a variety of consulting experiences across

industries and regions, with a focus on Asia and Europe.

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 over 3000 employees worldwide,

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

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Your Contact:

Ms. Anh Kim

Vector Consulting Services

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D-70499 Stuttgart

www.vector.com/consulting

[email protected]

+49-711-80670-1535

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Meet us at the annual Vector Forum on 25th June 2020:

Topic: “Ensuring Engineering Competitiveness: Digital Transformation and AI – Systems Engineering – Continuous Everything”

Details and free registration: www.vector.com/vectorforum

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