2024 R&D Trends Forecast

Results from the Innovation Research Interchange’s Annual Survey Data from this year’s survey show a mixed view on spending in 2024 with optimism for future years with substantial increases forecasted for digitization and new business initiatives.


R&D Trends Forecast
Results from the Innovation Research Interchange's Annual Survey Data from this year's survey show a mixed view on spending in 2024 with optimism for future years with substantial increases forecasted for digitization and new business initiatives.

Stewart Mehlman and the innovation research interchange
Since 1984, the Innovation Research Interchange (IRI) has surveyed R&D and innovation leaders about their actual activity and R&D budgets for the past year and their expectations and projections for R&D investment levels, activities, budgets, and other important factors for the year ahead.The survey also asks about the geographical dispersion of R&D facilities, innovation leaders' top concerns and views about macro trends, and the factors contributing to variance between actual and projected spending levels for both the preceding and upcoming year.The result is an analysis that highlights what matters most to innovation professionals.The primary goal of the survey is to map expectations regarding spending levels for the coming year.Recent historical data give context to this annualized snapshot and the forces driving those expectations.
According to survey respondents, 2023 had its share of challenges for organizations.Those challenges were changing market and business conditions rather than the surprises of the pandemic and the war in Ukraine.Respondents had a rather mixed view of 2023, with a third reporting an increase in spending this year, another third reporting a decrease, and a final third reporting no change to the 2023 budget over the year.Looking to the future, this year's respondents expressed optimistic expectations for next year and over the future five years, similar to last year's respondents.

about the Survey
The 2024 survey consisted of the previous survey's historical 28 questions: 2 open-ended questions and 26 questions with defined response sets.We excluded the specific Great Resignation question included in 2023's survey.This year's survey included two new questions related to digitalization spend and any changes related to sustainability.We retained, and will include both in future surveys, two questions added in 2022 regarding the percentage of revenue spent on R&D and a question on how surprises in the current year impact plans for the upcoming year.Eight of the 34 total survey questions asked for basic demographic information about the respondent and the company.
Our analysis of this year's survey is based on responses from 48 organizations (38 of them IRI members).This represents a substantially decreased level of response from last year when 94 organizations responded.The decrease was mostly among non-members as a result of lower survey circulation.The IRI member response number was in line with the five-year running average of 39.Some respondents didn't answer every question; the average number of responses to the closed-end questions was 44, a higher percentage (92 percent) than last year (85 percent).While the overall participant base was substantially lower than last year's survey, the respondents were more engaged on the open-ended questions as well, with a 60 percent average response compared to 50 percent last year.As with last year, some questions sought to gain additional insights into the expenditure on overall innovation activities, as opposed to focusing solely on traditional R&D, and some questions asked respondents to differentiate top priorities or challenges rather than merely indicating all subjects of importance.
IRI's changing membership and the voluntary nature of the survey mean that the mix of companies represented in the survey fluctuates each year.However, we believe there are sufficient responses from a wide enough cross-section of industries to provide reliable insight into general trends.While we believe that the data offer a reliable snapshot of trends within a given year, the reader should view comparisons across years with caution, as variability in the respondent pool and modifications in some of the survey questions over time make such analyses less reliable.

respondent Profile
The companies participating in this year's survey come from a range of industry segments; the largest proportion is from the materials/chemical/gases industry (Figure 1).Other fields represented in the respondent pool include consumer packaged goods/personal care, energy/utilities, food/beverage, machinery/industrial equipment, aerospace, automotive, and petroleum/plastics.Three fields which were amongst the top eight respondents to last year's survey: construction, academia, and government/nonprofit/federal laboratories had either none or only single participation this year.Most respondents are from medium to large corporations, defined in terms of revenue, with more than 79 percent reporting revenue greater than $1 billion (Table 1).Most are headquartered in the United States (77 percent), although European countries are also well represented (13 percent).Approximately 44 percent reported annual R&D investments between $6 million and $100 million, and another 44 percent reported spending in excess of $100 million (Table 2).Total R&D spending and company revenue in this year's survey represent larger firms and R&D spend than last year's survey respondents.We also asked, "What is your organization's anticipated total technological innovation of R&D spend as a percentage of revenue in 2023?"The most common answer was 1-3 percent of revenue by 37 percent of the respondents (Figure 2).While more than 75 percent reported spending 6 percent of revenue or less, approximately 13 percent indicated spending more than 10 percent of revenue.These amounts were similar to previous years.
Companies that provided data are also largely global; a large portion direct a significant amount of their R&D spending outside the United States.While some 19 percent reported that 10 percent or less of their R&D budgets are directed outside the United States, 38 percent reported sending at least 26 percent of their R&D expenditures overseas (Table 3).
These expenditures are distributed all over the world.Almost all respondents (95 percent) operate innovation centers in the United States.Other locations include Europe (69 percent), the rest of Asia (40 percent), China (38 percent),  India (35 percent), and the United Kingdom (27 percent) (Table 4).

Spending
The survey asked respondents about the difference between their projected and actual R&D budgets for the previous year.These questions allowed us to better contextualize the annual forecast.This year only 30 percent of respondents indicated little or no change, with essentially an equal number of firms reporting an increase (34 percent) or a decrease (36 percent).The responses were unlike last year, when most firms either indicated little or no change (42 percent) or an increase in spending (36 percent) in actual budget vs. projected 2023 budget when created in 2022 (Innovation Research Interchange 2023).Indeed, the results were unlike all recent years, with the exception of the first year of the pandemic, when only 27 percent reported little or no change (Innovation Research Interchange 2021).
To explain variances between projected and actual spending, we asked respondents to choose the top three factors in budget changes from a list of options.We kept this question consistent with previous surveys but clarified that supply chain issues should be considered schedule delays rather than changing business and market conditions.The top factor affecting the difference between actual and projected 2023 budgets was changing business and market conditions just as it was in recent years.While changing market and business conditions has historically been the major reason cited for budget deviations, the proportion of respondents selecting this reason this year was 55 percent, higher than last year (35 percent) but similar to the previous year (50 percent) (Innovation Research Interchange 2023, 2022).Changing emphasis on growth was a more prominent reason cited this year than recently with strategy change also commonly cited (Figure 3).
In an open response item, we allowed respondents to provide additional factors that created or contributed to deviation from forecasts.Inflation was not mentioned as a reason for deviation this year compared to last year when it was most commonly cited.The only factors cited were shareholder cash demands and energy transition (electrification).In response to a specific question on the impact of supply chain issues, 38 percent cited an inability to obtain needed materials, and 23 percent cited uncertainty created by supply chain issues, which were essentially the same as last year.

innovation investment Outlook
The survey asked two separate questions related to projected innovation spending for 2024.One question asked respondents to bracket the level of increase or decrease in innovation spending they expect; the second question asked for spending expectations by category using a simple increase/ decrease/constant scale.
Respondents were similarly optimistic for 2024 as for 2023.Fifty-nine (59) percent of respondents anticipate an increase of some level, and only 14 percent anticipate a decrease.Last year 56 percent of respondents were forecasting spending increases.This year only one firm (2 percent) anticipated a significant decrease of 5 percent or more.Onequarter of respondents (27 percent) expected little to no change in their 2024 R&D budgets (Table 5).
As in previous years, we asked respondents to indicate spending by type of activity.This year, while there was a significant percentage of respondents forecasting increases in spending, it was similar to 2022 and greater than 2023.Similar to last year, some organizations are forecasting a decrease in spending, especially in capital spending (16 percent of respondents).Spending on new business projects and existing business projects remains high, with forecasted increases of 55 percent and 27 percent, respectively.This finding continues a trend observed over the last several years of high interest in new business projects (Table 6).In the last few years, we added additional categories to capture total innovation spending (as opposed to total R&D spending) and asked questions about spending on emerging digital technologies, including machine learning/Internet of Things (IoT) and data collection/analysis.This year we saw slightly more forecasted increased spending on innovation than on R&D activities, though R&D increases were still quite robust.Interest remains high in digital technologies, including both data collection and analysis as well as machine learning.For the first time, we asked for a relative level of spending in any of the digital technology's areas.More than half of respondents (59 percent) reported 0-10 percent of their total innovation spend is allocated to digitization efforts; an additional 23 percent reported an 11-25 percent allocation.While some of the increases may come from a relatively small base, 9 percent of the respondents indicated spending more than 26 percent of their innovation budget on digitalization (Figure 4).
We also asked respondents to identify the factors most likely to influence their R&D success and, by implication, their budgets in 2024.We asked this question in a rank-order format; respondents identified their first, second, and third priority areas.As in previous years, the top response to this question was balancing long-and short-term R&D objectives.Similar to the last two years, though different than previously, the second response was attracting, developing, and retaining talent.Developing leadership remained a low priority despite a perceived connection between good leadership and talent management.Other areas of significant interest, as in recent years, included integrating technology planning and business strategies, and building and maintaining an innovation culture (Figure 5a).Once again, despite all the angst about the next normal in the post-pandemic world, few organizations identified post-pandemic work environment as a key priority area (Figure 5b).Another indicator of expectations in the R&D field is the outlook on staffing.When asked about expectations regarding net staffing changes in 2024, respondents this year were only mildly optimistic on staffing, with only 2 firms (5 percent) expecting a significant increase of over 10 percent, nearly 41 percent expecting slight increases, 45 percent expecting no change, and only 11 percent forecasting decreases.Last year respondents indicated 59 percent expected increases, 30 percent expected no change, and 11 percent forecast decreases.We asked separate questions about global hiring plans and hiring plans for US facilities.We saw a slightly less robust expectation for US staffing, with 43 percent of respondents expecting some increases globally, versus 36 percent expecting an increase in US staffing.In addition, 11 percent of respondents expect a decrease globally, whereas 17 percent expect a decrease in US staffing.
The open positions are being filled from the ranks of both new graduates and experienced professionals, with a continued trend of hiring significant numbers of experienced professionals: 30 percent of respondents expect increased hiring of new graduates versus more than 45 percent forecasting increased hiring of experienced R&D professionals.This level of forecasted hiring is not as robust as last year.This may be explained because only 14 percent  of respondents expect an increase in overall staff resignations versus 40 percent last year (Table 7).
We asked participants about the outlook for their organizations' R&D spending over the next five years.The answers indicate continued optimism in line with last year, with 52 percent forecasting slight increases in spending versus 49 percent last year and 54 percent in 2022.We saw only 2 percent expecting a decrease in R&D spending versus 8 percent expecting decreases last year (Innovation Research Interchange 2023) (Table 8).trends Over time To understand how this year's results compared to previous years, we looked at trends in the data over the last six years (see "Analysis of Data Trends over Time" on page 28).To accomplish this, we created a Sentiment Index by dividing the responses indicating a positive (increasing) change in a given category by the total responses of organizations expecting increasing, decreasing, or constant spending for each year.Graphing these differences over time provides a general sense of the changes in sentiment over time.As with other indicators, this year's analysis shows a similar robust outlook as last year, though still a significant rebound, and is a response to the restrained outlook for both 2021 and 2020 (Innovation Research Interchange 2021, 2022) when the data reflected a more restrained outlook regarding R&D spending than previous years (Figure 6).
To probe these perceptions in more depth, we examined trends in spending forecasts for key categories of spending (Figure 7).The figure is simplified to only show certain categories as technical service/customer support continues to mirror support for existing business.Similarly, directed basic research mirrors the trend for training/development of R&D staff.Similar to last year when nearly half (48 percent) of respondents indicated no change, these data suggest we should not over-interpret this trend.Interest remains high in funding for support of new businesses as well as the digital categories.
We continue to ask specifically about expenditure on training and development of staff.Interest in this area is high as it has been since the question was added, and similar to last year, two-thirds of respondents (66 percent) indicated they expect no change in this area.Several years ago, we added questions about total spending on innovation as well as separate questions about spending on machine learning and data analysis.All of these areas showed high levels of commitment.The very high level of interest in data analysis continued with 66 percent of respondents indicating an increase and the remainder firms active in these areas indicating no change.
We present the overall seven-year trend in R&D spending.The results were nearly identical to last year with 55 percent indicating some level of increase and some organizations (11 percent) indicated a level of decrease (Figure 8) (Innovation Research Interchange 2018, 2019, 2020).In previous years IRI analyzed trends over time using the Sea Change Index, and in recent years a Sentiment Index, a custom metric that attempted to show changes in perceptions around R&D spending by quantifying the differences between positive and negative responses within a given year and then comparing those differences to previous years.However, changes in the survey questions, yearly variation in the respondent pool, and differences in how the Sea Change was calculated in different years have made it difficult to construct a meaningful comparison using that calculation.We used the Sentiment Index calculation that we introduced last year for both the spending and collaboration trends.We believe the new calculation provides a more logical and consistent evaluation of the trend.To ensure the analysis is reliable, we have restricted our analysis to the last seven years.Readers who wish to compare data over a longer time frame using R&D Trends reports prior to 2018 should note the criteria used for the Sea Change Index in any given year and be cautious in comparing data over extended periods.
the Outlook for external collaboration In addition to questions about budgets and expenditures, the survey asked about activity in various categories of external collaboration specific to innovation.These data enable us to gain deeper insight into how companies approach collaboration.This year's responses show continued commitment to external collaboration.This finding is reflected in the continued growth in almost every category and only a few instances of decreases in any category.There is continued increased interest in external alliances and consortia as well as in startups (Table 9).The seven-year trends for collaboration activities indicate continued commitment to various collaboration activities with some yearly variation in specific collaboration type, presumably due to both variation in survey respondents as well as tactical adjustments by innovation leaders (Figure 9).(We included collaboration with startups to emphasize how popular this activity is.)Like last year, we calculated the collaboration trend data using the same Sentiment Index formula we used for the spending trends discussed in "Analysis of Data Trends over Time "on page 26.
Four years ago we stated that participation in alliances has historically been the strongest indicator of an industry's expectations for collaborative R&D.While most firms use many forms of collaboration, alliances are the most common, with only 8 percent of respondents indicating no activity.The continued commitment to collaborative R&D in this year's survey indicates that collaborations are an essential element of innovation strategy.

ensuring r&D Success
Creating new technologies and services that meet customer needs is the lifeblood of innovation, and finding new and innovative ways to accomplish this mission is vital.When asked which tactics their organizations will employ to develop new technologies over the next three years, respondents indicated that high priorities are academic collaborations, in-house development, industrial collaborations, virtual design, and working with startups.This was similar to last year with the exception that hiring new staff was mentioned by only 40 percent of respondents, a decrease from last year's higher figure (63 percent) (Figure 10).identifying New technologies As done in the previous five years, the survey asked several questions aimed at identifying what organizations are doing with regard to creating and sustaining innovation (Figure 11).In the last four years' surveys, we asked respondents to first identify the three most important technologies for the next three years and then indicate all technologies they believe will be of importance.This year's results are consistent with those of the recent years: respondents identified digitization as a significant priority for innovation leaders; five of the six areas of the most important technologies identified were digital in nature.Perhaps equally significant, the top category was renewable energy and materials.We inadvertently excluded circular economy (a new category last year) from potential responses.Other technologies of significant impact include artificial intelligence (AI), big data, digital collaboration, and simulation technologies.We asked participants to identify the top three challenges they anticipate facing in 2024.Balancing high-risk/ reward projects within the portfolio was the greatest challenge with almost half of respondents (48 percent) identifying it as a major challenge, an increase from 40 percent the previous year.Driving efficiency/speed to market (37 percent) was next with an increase from 28 percent the previous year.Somewhat surprisingly, recruiting and retaining top technical talent, which had been the greatest challenge in the last two years (48 percent in 2023), was only identified as a major challenge by 19 percent of respondents.Other oft-cited areas were balancing sustainability and cost and performance/quality/supply, adapting to changes in markets, supply chain, or regulatory environments, and technology roadmapping/forecasting technology trends, disruptive technologies, as well as new and emerging technologies.
We included an open-ended question asking respondents to briefly describe the greatest technological challenge they believe their industries will face over the next three years.The open-ended answers were generally similar to the responses regarding important technologies, but respondents also offered different insights.Nine of the 31 respondents that replied identified various aspects of sustainability.Eight respondents also identified various challenges related to human resources, and another eight respondents identified digital issues such as AI, data analytics, and modeling/  In another open-ended question, we asked respondents to note any regulatory or legislative actions by local, national, or international governing bodies in 2023 that they believed were likely to affect their R&D organizations significantly in 2024.Slightly more than three-quarters of the respondents responded to this question, and the thirty-seven survey respondents who commented offered a wide range of responses (Table 10).As with the last four years' surveys, the most common area of concern was ever-changing regulations and regulatory frameworks.It was difficult to parse what was an environmental versus a regulatory concern, so we combined those into one category.The most common specific regulatory concern cited was related to Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS).
This year we again asked survey respondents to identify the most important macrotrends that will impact their organization's innovation strategy.As with the question regarding top technologies, we asked respondents to indicate the top three trends, in terms of priority, and then select all other trends that are important.We added the rise of AI tools and regulatory uncertainty as choices, and respondents identified them as two of the top categories along with four categories from recent years: climate change, supply chain issues, changing workforce demographics, and political and economic uncertainty.Reshoring was still a factor, but a lower percentage of respondents considered it as having a great impact this year (Figure 12).These responses, when considered in conjunction with the open-ended responses on governmental and regulatory changes, give additional insight into factors impacting R&D spending.

Measurement of r&D Success
As in previous years, we asked survey participants how they measure R&D success.Consistent with previous years, the top four categories remained the same.However, there was more demarcation.The largest number of respondents (73 percent) reported that they measure  success by number of products created, followed closely by the ROI for new products and services (68 percent), company revenue growth (66 percent), and then the number of patents issued (61 percent) (Table 11).These commonly used metrics are consistent with another recent study by IRI on Innovation Dashboard metrics (Watson, Brown, and Witzeman 2018).

FIGURE 3 .
FIGURE 3. Reasons for deviation from projected R&D spending for 2023

FIGURE 4 .
FIGURE 4. Percentage spend on digitization efforts

FIGURE 5A .
FIGURE 5A.Top eight factors likely to affect 2023 innovation success

FIGURE 11 .
FIGURE 11.Important technologies for the next three years

FIGURE 12 .
FIGURE 12.Most significant macrotrends for innovation

TABLE 3 .
respondents by portion of r&D outside uS *Total greater than 100 percent due to rounding.

TABLE 4
Anticipated total technological innovation or R&D spend as a percentage of revenue in 2021-2023

TABLE 5 .
expected changes in r&D spending relative to 2023 *Total greater than 100 percent due to rounding.

TABLE 6 .
expected changes in 2024 innovation and r&D spending by type *New category starting in 2020 survey.

TABLE 7 .
respondents' hiring plans by type of hire

TABLE 8 .
Five-year forecast for r&D spending *Total lower than 100% due to rounding.

TABLE 9 .
expected changes in collaboration by type

TABLE 10 .
challenges emerging from governmental or regulatory actions Preferred technology and product development tactics simulation as primary challenges.Unlike last year, when 10 (of 53) respondents identified supply chain issues, this year not one respondent identified supply chain explicitly.

TABLE 11 .
Metrics of r&D success