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Directing R&D investments: 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?
When smart stuff isn’t smart enough: All that R&D spending on smart products and services is pretty terrific, but it appears that a lot of the smart stuff is pretty dumb. Unfortunately, the script kiddies who broke the internet on Oct. 21 figured that out before the companies that make the smart stuff.
The distributed denial-of-service (DDoS) attacks against DNS provider Dyn, which cut off major internet platforms and services, were originally thought to be caused by tens of millions of hacked IoT devices. Now, it’s down to 100,000 unsecured security cams, according to Quartz.