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Innovation Study



Companies are shifting more R&D spending to software and services.

By 2020, companies will have shifted the majority of their R&D spending away from product-based offerings to software and service offerings, according to the 2016 Global Innovation 1000 Study from Strategy&, PwC’s strategy consulting business. The need for better business outcomes, have more upside potential, to better differentiate, and to be competitive are the top reasons why companies are shifting R&D funding.  According to the study, companies who reported faster revenue growth relative to key competitors allocated 25 %  more of their R&D budgets to software offerings than companies who reported slower revenue growth as follows –

 

 

 

 

“Many of the world’s major innovators are in the midst of a transformational journey mostly driven by changing – and rising – customer expectations,” says Barry Jaruzelski, innovation and R&D expert for Strategy& and principal with PwC US. “The shift is also being driven by the supercharged pace of improvement in what software can do, including the increasing use of embedded software and sensors in products, the ability to reliably and inexpensively connect products, customers and manufacturers via the Internet of Things (IoT), and the availability of cloud-based data storage.

Companies will recruit more Data and Software Engineers to build their capabilities

To support the development of software and services offerings, fewer companies will focus their R&D spending on the electrical and mechanical field. By 2020, the number of companies reporting that electrical engineers are their top employed engineering specialty will fall by 35 percent and the proportion of companies who expect that data engineers will represent their largest group of employed engineers will double from 8% to 16%.  Jaruzelski says, “An increase in software and services, even in more traditional industries has created a shift towards hiring talent that can develop software and provide platforms to collect and analyze product-related data. The shift is already changing the way business schools think about their course offerings, and will have profound effects both on education and, more generally, on the future of employment.”

Regionally, companies in North America are making the strongest shift to software offerings—from 15 % of total R&D spending in 2010 to 24 % in 2020. While Asia remains the most product-centric region, with 44 % of R&D allocated to product offerings in 2010, only falling to 40 %  in 2020. The automotive and industrial sectors are making the most aggressive push towards developing new software offerings.

Among companies that made an acquisition during the past five years, the vast majority – 71 % – were made to enhance capabilities in software (33%) or services (38%).

The annual analysis of the world’s 1000 largest R&D spenders also found the following:

 

 

*The 10 Most Innovative Companies are named by respondents of a 2016 survey of global innovation experts.

October 24, 2016               ….  Innovation  Industry  news

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