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.

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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.”