Strategy&: Innovation spending grows 5% to 680 billion

02 November 2015 Consultancy.uk

R&D spending by the largest companies around the world has increased 5.1% since last year to reach $680 billion, research by Strategy& shows. Particularly computer and electronics, healthcare, auto, and software and internet are spending big. The report further highlights however that both spending ‘too much’ or ‘too little’ may be detrimental to performance, and that statistical relationships between R&D spending and performance metrics are not clear.

For 11 years Strategy&, the strategy consulting business of Big Four firm PwC, has explored the innovation landscape for its acclaimed ‘2015 Global Innovation 1000: Innovation’s New World Order’ report. The report explores the innovation trend of the 1,000 largest publicly listed corporate R&D (research & development) spenders. To develop the trend, the consulting firm researched 207 companies headquartered in 23 countries, finding their R&D footprint to consist of 2,041 R&D sites spanning more than 60 countries. The firm further engaged in an online survey of 369 innovation leaders around the world.

R&D spending by the Global Innovation 1000

Growing R&D trend
The research finds that investment in R&D spending has accelerated in growth, up from $647 billion in 2014 to hit $680 billion in 2015, which represents a 5.4% CAGR. The increase to above 5% is a considerable gain on 2013 and 2014 when the rate stood at 3.8% and 1.4% respectively, and comes in line with the 10-year CAGR of 5.4% that has seen R&D spending up 70% from $400 billion in 2005.

R&D Spending by Industry

Spending by sector
Investment in R&D differs considerably between different industries. The largest spenders on R&D are computing and electronics and healthcare, at $166 billion and $145 billion respectively. In the past year however, computing and electronics has seen a -0.7% decline, while healthcare has increased by 6% - closing the gap between the forerunners. The consultancy’s prediction is that healthcare will outspend computing and electronics by 2019.

The software and internet segment has enjoyed massive growth in recent years, more than doubling since 2011 to spend $76 billion in 2015 – surpassing industrial to become the fourth largest spender.

R&D spend as % of revenue

R&D intensity
The intensity of R&D activity – as a % of revenue spent on R&D – has increased slightly this year over 2014. This is owed for a large part to a 1% decrease in revenue across industries, particularly affecting the chemicals and energy sector from falling oil prices. R&D spending tends to be ring-fenced in the medium term, resulting in increased activity. The long term trend, from 2005, has seen a declining CAGR of -1.2%, averaging out spending as % of revenue, to 3.7%.

The Performance Disadvantage of the Bottom 10 percent of Spenders

Effective spend
The report highlights that while companies are spending considerable amounts on R&D, spending ‘too much’ does not necessarily produce consistently better outcomes for the companies. However, particularly spending too little is correlated with poor performance in operating profit. According to the Strategy&, operating profit growth is better served by those spending in the middle indexed 80% compared to the top or bottom 10%.

The firm also notes that R&D spending as such does not guarantee success in many of the major metrics used to determine business success, with no statistical relationship between R&D spend and sales growth, profit growth, operating profit growth, operating margin, net profit growth, net margin, market cap growth and total shareholder return.

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Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”