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Solving Software’s R&D Conundrum
Smaller software companies tend to outperform their larger competitors in returns from R&D investments. How can software companies ensure the scaling of R&D even as they grow?
Building market-winning products and services requires a rigorous approach to innovating and engineering. BCG helps companies transform R&D and improve product excellence so they can bring the right products to the right customers at the right time.
Technology companies have a lot riding on how they prioritize markets, structure their innovation and product development processes, allocate R&D spend, and design their operating models. Whether they make enterprise software, semiconductors, or software-as-a-service applications, they depend on product innovation and engineering to meet these strategic objectives, navigate increasing complexity in technology and customer expectations, and stay ahead of the competition.
At a time when innovation and disruption happen so fast, getting product development right is a must. When product development is in sync with a company’s overall strategy, it can reduce R&D costs, drive product-market fit, and speed new products to market. It can also improve customer satisfaction and help employees feel more engaged.
But getting there is not without its challenges. Problems with product innovation and engineering can crop up if companies don’t have a clear vision or business plan, don’t allocate R&D spend correctly, or mismanage product development. The costs can be high—they include missed opportunities for growth and a weakened competitive position.
Our comprehensive method for improving R&D includes enhancing product and portfolio strategy, R&D spending, product management, technology and tooling, and the function’s organization and operating model.
Part of our product innovation consulting services includes an R&D index to gauge the effectiveness of a company’s R&D investments on revenue growth. BCG used this method to help a technology company transform an improperly weighted R&D portfolio. The client lacked insights and guidelines for R&D spending, leading it to over-invest in innovations for slow-growing markets and spend too little on product development for faster-growing ones.
Our team worked with the company to create a new R&D spending allocation framework with tracking and review guidelines, and helped them establish KPIs and OKRs to keep product management in line with strategy. The transformation freed up 25% of low-return R&D spending, which was leveraged to expand into new capabilities, markets, and clients.
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BCG specialists understand the ins and outs of product discovery, product budgeting and planning, and engineering: