MIT Sloan Management Review, November 3, 2016
by Theodore Kinni
Strategy&’s annual Global Innovation 1000 study, which examines the 1,000 public companies that spend the most on R&D (collectively 40% of the world’s total R&D spending), is always insightful. The most dismaying finding: In every one of the past 12 years, the study has found no statistically significant relationship between the financial performance of the Innovation 1000 companies and their R&D spending.Assuming that fact doesn’t cause you to throw up your hands and use your company’s R&D budget for a massive beer bash, this year’s study, published in strategy+business, provided another insight that is well worth considering: A transformation in R&D spending is occurring.
“R&D is shifting more and more toward developing software and services,” write Strategy& principals Barry Jaruzelski, Volker Staack, and Aritomo Shinozaki. “Software increasingly carries the burden of enabling product differentiation and adaptability, and enhancing customer experiences and outcomes. Services, offered along with or separately from physical products, now focus more on new customer needs, providing enhanced value and improved usability.”
This shift, explain the authors, is driven by the ever-increasing capabilities of software, the embedding of software and sensors in products, the ability to connect products via IoT and the cloud, and, as always, customer demand. It’s manifesting in every kind of “smart” product and service.
Since 2010, the Global Innovation 1000 companies have increased their R&D spending on software offerings by 65% — to $142 billion. In addition, report the authors, “companies currently allocating 25% or more of their R&D budgets to software offerings reported that their revenues were growing significantly faster than those of key competitors with lower allocations.”
What does your company spend its R&D budget on? Read the rest here.
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