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 to stay competitive is the top reason why companies cited a shift in their R&D budgets towards software and services, and for good reason – 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.
“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."
The average allocation of R&D spending for software and services increased from 54% to 59% between 2010 and 2015 and is expected to grow to 63% by 2020.