Organizations’ software-based revenues are expected to quadruple by 2030

Paris, November 20, 2023 – Software is redefining the next era of business and will make a greater contribution to revenue by 2030, according to the latest report by the Capgemini Research InstituteThe Art of Software: the new path to value creation across industries. Organizations expect their software-based revenue[2] to grow to 29% by 2030, up from 7% by 2022. Across industries, software and software-enabled technologies such as cloud, Internet of Things (IoT), high-performance networks (including 5G) and AI/ML[3] accelerate innovation and research and development (R&D) for products and services, create personalized customer experiences, introduce new revenue streams and business models, and reduce costs.

According to the research, organizations across all industries are redefining themselves as software companies, shifting away from traditional hardware-centric business. Currently, a quarter of companies already identify as ‘software’ companies[4] and another 32% expect to transition to software enterprise status within the next 3-5 years. Almost 60% of organizations agree that software-driven transformation is now a boardroom topic, with the majority recognizing it as a strategic capability to stay ahead of the competition, transform business models and unlock new value for their customers, rather than a tool or an addition.

Successful software-driven transformation is expected to deliver significant financial gains for organizations across all industries by 2030, the report cites. The telecommunications sector leads this trend with an expected revenue increase of 39%, followed by automotive and banking and insurance (32% each) and life sciences (31%).

Organizations invest a fifth of their R&D budgets in software-driven initiatives

According to the report, almost 18% of total R&D budgets are currently spent on software-driven initiatives. More so, investment in software-driven transformation is expected to accelerate, with 60% of organizations across sectors planning to increase their investment in software initiatives by 9% over the next two years. Of this investment, more than a third is focused on product or service development.

Generative AI: a key co-pilot to accelerate the software-led transformation

As demand for connected, intelligent products and services grows, organizations are turning to technologies like generative AI to help engineers throughout the software development lifecycle and accelerate the delivery of software code. According to the report, generative AI tools are expected to increase software development time savings from 15% to 43% over the next three years.

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The research study shows that seven in 10 organizations plan to use generative AI to complement and extend existing software technology over the next year, and expect these tools to help create 37% of code in the next three years. Only 28% of organizations surveyed stated that they do not intend to use generative artificial intelligence to assist software development in the next 12 months.

Challenges remain to fully embrace the software-led transformation

Despite the significant benefits, 68% of organizations remain in the early experimentation stages of their software-driven transformation. Only 29% of organizations have begun to scale and use software to drive transformation, while only 5% have implemented fully scaled initiatives.

To realize the software’s full potential, organizations must ensure interoperability and flexibility across different platforms. But less than half (48%) of organizations have a highly scalable architecture. The report highlights that nearly 40% of organizational software investments currently focus on maintaining legacy products. Managing long-term operational costs and performance levels becomes a critical challenge for the transition from legacy to future-proof architectures.

Talent is the key to realizing success

Fostering talent is also key to realizing software-driven success. While organizations expect 39% of their workforce to work on software solutions in the next three years, there is a shortage of critical skills, particularly in areas such as cybersecurity and compliance (61%), AI, machine learning (ML) and deep learning ( DL)[5] (60% each) and data and cloud (57%).

“We have entered a new era of software-led business,” says William Rozé, CEO of Capgemini Engineering and member of Capgemini’s Group Executive Board. “Organizations require a mindset shift if they are to differentiate, innovate and remain competitive. The thinking must move away from using digital technologies as an add-on or a tool to iron out wrinkles and smooth edges. Instead, leaders must see software as an important strategic asset that can unlock a myriad of benefits and establish competitive differentiation But to achieve software excellence and the benefits it has to offer – organizations will need to think holistically: from establishing strategic partnerships where necessary; to define a clear transformation roadmap to ensure the architecture underpinning it is robust, sustainable and scalable. Generative AI presents significant potential here – with the ability to massively accelerate all endeavours.”

For more information or to download the report, visit: Link

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The Capgemini Research Institute surveyed 1,500 senior executives (director level and above) from organizations with an annual turnover of more than DKK 1 billion. USD. The organizations came from a range of sectors, including automotive, consumer products, retail, aerospace and defence, life sciences, banking and insurance, telecommunications, energy and utilities, high technology, industrial and capital goods and manufacturing. They are based in 13 countries in North America, Europe and APAC.

In addition, 20 in-depth interviews were conducted with industry leaders from various organisations. All participants interviewed are involved in the development of software-driven transformation initiatives working across all functional areas, such as general management/strategy, innovation, software engineering, research and development, IT and data management, marketing and sales, product/service development , and customer management.

[1] Software engineers use generative AI throughout the software development lifecycle, from business needs analysis and writing agile user stories to help write software code, optimization, completion, testing and debugging, and monitoring.

[2] Software-based revenue as a share of total revenue.

[3] Machine Learning (ML) is a field of study within artificial intelligence that deals with the development and investigation of statistical algorithms that can effectively generalize and thus perform tasks without explicit instructions.

[4] By “being a software company” organizations mean that they reconstruct their business models around software and thus transform their business processes, organizational structures and revenue models.

[5] Deep learning (DL) is the subset of machine learning methods which are based on artificial neural networks with representation learning.

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