Automotive R&D spend switches from hardware to software
02 December 2016
It’s now 12 years since our first Innovation 1000 study – a unique analysis of spending on research & development (R&D) by the world's largest 1,000 corporate R&D spenders. This year’s study identified the automotive industry as the third highest spender on R&D behind healthcare and software and electronics, globally.
Industry innovation is also advancing in business models, as automotive firms apply “Industry 4.0” principles to create new ways of doing business and open up fresh revenue streams. This is reflected in the main theme that emerges from this year’s Innovation 1000 - the rise of software and services R&D, as companies switch their focus away from traditional hardware R&D. This trend reflects the rapid pace of change in software, as it becomes less and less expensive, and as consumers’ expectations of the functionality, connectivity and value-add from software running on their hardware products continue to rise exponentially.
The average R&D spend on software and services in our latest Innovation 1000 study has grown from 54% in 2010 to 59% in 2015 – and is set to go as high as 63% by 2020. A further significant finding from our research is that companies that allocate more of their R&D budget towards software are achieving faster revenue growth than those that don't.
Alongside the analysis of hard R&D spending figures, the study also includes a perception survey asking which companies have the strongest reputation for innovation. Interestingly, we find that few companies are ranked in the top ten both for R&D spending and perceived innovation – demonstrating that innovation is not about how much you spend, but how smartly you do it.