In Strategy&’s annual “2016 Global Innovation 1000,” a study examining the R&D and innovation trends of the top one thousand biggest publicly listed corporations, data indicated a trend of companies shifting their R&D focus away from physical products to software and services between 2010 and 2015, especially North American firms. This is a major shift in corporate spending, since in 2010, 50% of all companies allocated at least 50% of their R&D spending to physical products. Within the five-year period, R&D expenditure for software and services increased from 54% to 59%, totaling $142 billion in software offerings, and is forecast to reach 63% by 2020. Based on the study, 57% of companies indicated that the shift in R&D budgets is due to their need to stay competitive, while 54% cited a need for increased revenue as the reason. In North America, 15% of companies’ R&D expenditure was on software and is expected to reach 24% by 2020. From 2010 to 2015, there was a 25% difference in the speed of revenue growth between companies that allocated a greater portion of R&D expenditures to software offerings and companies that did not. This spike in software R&D is also affecting the employment landscape of these companies, with a greater employment rate for engineers (data, software, systems, mechanical and electrical).

The total R&D expenditure by the thousand companies increased 0.04% to $679.8 billion in 2016. Total revenue, however, fell 11.8% to $16 trillion, predominantly due to a decline of 31% in revenue in the chemicals and energy industries. This caused an increase in “R&D intensity” of 4.2% in 2016, a 13.5% jump. The majority of industries’ R&D spending remained flat or decreased, save the software and internet, health care and consumer industries, where it increased 15.4%, 3.6% and 0.7%, respectively. Because of this, the software and internet industry is expected to be the largest R&D spender by 2018, followed by the health care industry. The computing and electronics, health care and automotive industries represented a combined 62% of total R&D expenditure, followed by the software and internet, industrials, and chemicals and energy industries, which make up 29% of total R&D spending.

By region, R&D expenditure increased in North America and China by 8% and 19%, respectively, and declined in Europe in Japan by 9% and 8%, respectively. The growth of North American R&D expenditure is largely due to its presence in the software and internet, health care, and computing and electronics industries, of which it represents 62%, 56% and 43%, respectively, of the total number of companies. China has the greatest presence in the industrials industry (19%), while Japan dominates the auto industry (30%).

Source: Strategy&