Com­pa­nies that in­vest R&D bud­gets to soft­ware of­fer­ings have faster rev­enue growth

Financial Mirror (Cyprus) - - FRONT PAGE -

By 2020, com­pa­nies will have shifted the ma­jor­ity of their re­search and de­vel­op­ment (R&D) spend­ing away from prod­uct-based of­fer­ings to soft­ware and ser­vice of­fer­ings. Ac­cord­ing to the Global In­no­va­tion 1000 Study from PwC’s Strat­egy&, the main rea­son for this shift in R&D bud­gets is the need to stay com­pet­i­tive. The study showed that com­pa­nies which re­ported faster rev­enue growth rel­a­tive to key com­peti­tors al­lo­cated 25% more of their R&D bud­gets to soft­ware of­fer­ings than com­pa­nies which re­ported slower rev­enue growth.

Stud­ies also showed that 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.

Fur­ther­more, the av­er­age al­lo­ca­tion of R&D spend­ing ded­i­cated to prod­uct-based of­fer­ings fell to 41% (from 46% in 2012), and is ex­pected to fall to 37% by 2020 (an over­all de­crease of 19% in a decade).

Av­er­age al­lo­ca­tion of R&D spend­ing on soft­ware of­fer­ings alone will in­crease by 43% by the end of this decade and R&D spend­ing on ser­vices will grad­u­ally over­take in­vest­ments in prod­uct-based in­no­va­tion (39% vs. 37% by 2020), while global R&D spend­ing on soft­ware of­fer­ings has in­creased by 65% be­tween 2010-2015, from $86 bln to $142 bln.

“The shift is 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,” said Barry Jaruzel­ski, in­no­va­tion and R&D ex­pert for Strat­egy& and prin­ci­pal with PwC US.

To sup­port the de­vel­op­ment of soft­ware and ser­vices of­fer­ings, fewer com­pa­nies will fo­cus their 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% and the pro­por­tion of com­pa­nies that ex­pect that data en­gi­neers will rep­re­sent their largest group of em­ployed en­gi­neers will dou­ble from 8% to 16%, the PwC sur­vey added.

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

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