2016 Global Innovation 1000 Study reveals shift in R&D spend to software and services

By 2020, companies will have shifted the majority of their research and development (R&D) spend 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 this shift in their R&D budgets. Liesbeth Botha (pictured), Strategic Digital Transformation Leader, PwC Africa, said:

"In this year's Global Innovation 1000 study we focused on the transformation that R & D is undergoing as companies strengthen their software and service offerings. The shift is increasingly being driven by the significant improvement in what software can do and the growing use of embedded software and sensors in products, customers, and suppliers via the Internet of Things and the availability of cloud-based data storage. Most of all, it is being driven by increasing customer expectations."

For the seventh year running, Apple and Alphabet (formerly Google) continue to lead the most innovative list. Google continues to make waves with initiatives such as its self-driving project, while Apple focuses on its capabilities in gaining customer insights to improve popular products such as the iPhone. Only one South African company, Sasol, was listed on the 1000 Companies List for R&D spend and R&D intensity. According to PwC's Africa Business Agenda, 2015 report, almost 90% of CEOs saw digital technologies and innovations as vital to their success.

"African corporates together with the government have the opportunity to drive more domestic R&D investment into innovation and digital transformation to build an economy that is recognised for its talent, skills and knowledge," Liesbeth added.

Key findings of the study included:

  • 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.
  • The average allocation of R&D spending dedicated to product-based offerings fell to 41% (from 46% in 2010), and is expected to fall to 37% by 2020.
  • Average allocation of R&D spending on software offerings alone will increase by 43% by the end of this decade.
  • Global R&D spend on software offerings increased by 65% between 2010 and 2015, from $86 billion to $142 billion.