By 2020, companies will have shifted the majority of their R&D spending from product-based offerings to software and service offerings, according to a study by PwC’s strategy consulting business 2016 Global Innovation 1000 study.

The 2016 Global Innovation 1000 Study from Strategy& found that the average budget allocated to R&D for software increased from 54% in 2010 to 59% in 2015, and is expected to grow to 63% by 2020.

Meanwhile, company spending on product-based offerings fell from 46% in 2010 to 41% in 2015, and is expected to drop to 37% by 2020.

Barry Jaruzelski, innovation and R&D expert for Strategy& and principal with PwC US, said: “Many of the world’s major innovators are in the midst of a transformational journey mostly driven by changing – and rising – customer expectations.”

Staying competitive

The report also reveals that companies are now more aware of the need for rapid technological advancement to stay competitive.

For example, the study found that companies who reported faster revenue growth relative to key competitors allocated 25% more of their R&D budgets to software offerings, than companies who reported slower revenue growth.

Changing employment dynamic

The hiring of staff is also likely to be affected by the shift in R&D spending.

By 2020, the number of companies reporting that electrical engineers are their top employed engineering specialty will fall by 35%, and the proportion of companies who expect that data engineers will represent their largest group of employed engineers will double from 8% to 16%, according to the study.

Jaruzelski commented: “An increase in software and services, even in more traditional industries has created a shift towards hiring talent that can develop software and provide platforms to collect and analyse product-related data.”