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Many of the most innovative companies, like Apple and Alphabet have enormous R&D budgets. But, businesses are spending less on R&D. PwC estimates that R&D budgets in 2020 will be 19 percent lower than they were in 2010. What does that mean for Innovation?
Some of the findings from the PwC Strategy& report are:
- R&D spending among the top 1000 corporate R&D spenders in 2016 was flat, totalling $680 billion
- Healthcare R&D spending is growing most quickly and is expected to become the largest overall industry by 2018
- Businesses that invest more than a quarter of their R&D dollars into software grow more quickly
While there is a strong correlation between R&D spending and innovation, there are notable exceptions. Tesla for example, was ranked at number 4 in innovation, yet they spent only $700 million on R&D in 2016, a tiny amount compared to other businesses, even among other automakers.
What is interesting is that some of the top R&D spenders consistently fail to rank in the area of innovation. Volkswagen, for example, was the top R&D spender for the last five years and also a top spender in many years previous to that, yet they never ranked in the area of innovation. In fact, many auto and healthcare businesses, like Ford, GM, Roche and Merck have high spending for R&D but fail to rank in the area of innovation.
Perhaps more important than having a large R&D budget, the ability to use the dollars that are allocated wisely is more important.