They’re also good news for software and data engineers, who will be increasingly favored over workers with mechanical engineering skills.
Today, companies allocate more than half of their R&D spending to product-based offerings, but this is set to change as software capabilities improve, according to the Global Innovation 1000 Study by Strategy&, a strategic consulting division of PwC.
It based its findings on an investigation of the 1,000 public companies around the world that spent the most on R&D in the year to June 30. The proportion of spending dedicated to software and services in the most recent year was 59%, up from 54% in 2010, and is expected to rise to 63% by 2020.
Spending on product-based offerings fell to 41%, from 46% in 2010, and is expected to fall to 37% by 2020.
The shift is primarily being driven by changing customer expectations, Barry Jaruzelski, a principal at Strategy& said. But it’s also underpinned by “the supercharged pace of improvement in what software can do”, he added. Key capabilities include embedded software and sensors in products, cloud-based storage and the ability to connect products, customers and manufacturers via the Internet of Things.
And embracing digital R&D isn’t just about keeping up with the latest trends. It also appears to boost revenue.
Companies with faster revenue growth than key competitors spent 25% more of their R&D budget on software offerings, the research found.
Interestingly, the two companies that topped Strategy&’s list of R&D spenders, Volkswagen and Samsung, have both been the subject of costly scandals, a reminder that innovating successfully isn’t just about spending. The German auto company is still reeling from the revelation that it placed emissions-cheating software in cars, while Samsung this month was forced to kill off production of a smartphone prone to catching fire.
Rounding out the top five were Amazon, Google parent Alphabet and Intel.