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Importance of R&D for Digital companies

At Innoplexus, being an AI and data first company, we have been investing heavily in R&D and there has been an ongoing debate on how much is enough. I keep reading on the the topic and today I came across this excellent article in HBR which makes the case clear for higher R&D investment for Digital companies. Here is the link – https://hbr.org/2019/01/its-time-to-stop-treating-rd-as-a-discretionary-expenditure

Here are the key insights:

  1. R&D is an economically significant expense for digital companies, much larger than for physical product companies.
  2. A large component of R&D costs for digital companies consists of employee costs for engineering, product management, and information technology personnel.
  3. Digital companies consider product development as a necessary activity to survive. Digital companies must invest in product development to keep pace with the technological progress, competitive offerings, and ever-increasing customer expectations, or fear becoming obsolete in no time.
  4. Digital companies routinely rely on third-party software, algorithms, development tools, cloud services, security and data integrity systems, client monitoring, customer databases, and cross-selling platforms for their day-to-day operations.
  5. Digital companies continuously scout for acquisition targets to obtain readymade R&D and talent teams.

Thanks alot to the authors – Vijay Govindarajan, Shivaram Rajgopal, Anup Srivastava, Luminita Enache – for conducting this investigation and sharing the insights.