Subba’s Serendipitous moments

April 24, 2008

Enterprise software –Is there a misalignment?

Filed under: Business,Perspective,Strategy — Subbaraman Iyer @ 11:53 pm
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Vinnie Mirchandani — ex Gartner and a respected blogger dislikes the fact that the tech industry spends so little in R&D and asks a rather pointed question: “If your favorite charity only contributed 10% towards needy causes, you would not spend them much the next year”

I did some analysis last year of the R&D spend and the SG&A spend of the 40 top Enterprise software companies (excluding IBM and Microsoft). This is what I found:

The industry average for SG&A: R&D spend is about 2.5:1. Here’s how it breaks up segment wise:

Annual revenues > $ 1 Billion : SG&A: R&D = 2.4: 1

Annual revenues $500 M- $ 1 Billion : SG&A: R&D = 3.2: 1

Annual revenues $250M- $ $500 million : SG&A: R&D = 3.2: 1

Annual revenues < 250 Million : SG&A: R&D = 2.7: 1

If one recognizes that even in the R&D spend, there is more development spend than research. I would suspect that the development spend is almost 60% of the R&D spend, which means that the last place one has to look for innovation is the software companies.

Vinnie makes a valid point that the start ups probably spend more on research. True, but even these start ups once they begin to scale up, have to spend more on SG&A.

Is the industry structure, with their practices inherently broken and cannot be fixed? I wonder!

My advice to CIOs would be to build their own innovation teams and do things that are relevant for their challenges rather than live in the hope that the Enterprise software world has the complete perfect solution for them.

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1 Comment »

  1. The drive for hiking research allocation in any enterprise budget is often stimulated by quality conscious competition. Company boards and managements have their fixation with quarterly results and incremental EPS so that they achieve preset milestones that qualifies them for stock grants.

    Now who wants to boil the ocean and why…?

    Comment by Krishna Mony — April 25, 2008 @ 9:29 am | Reply


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