Traditionally, before SaaS became a thing, IT departments in non-software companies were largely considered cost centers. Unless you were a software consulting company, developers’ salaries were an operating expense in the P&L.

Later, the SaaS model changed this for good. If your product is a software, the department that builds it cannot be an operational cost anymore (not entirely anyway). Even the language we use changed. Our products create value. We invest in new initiatives. In most cases R&D salaries are capitalized and become an asset rather than an expense line in the P&L. R&D initiatives are now evaluated by their ROI. Even bug fixes impact client retention and hence the long-term client value. All in all, R&D departments shifted closer to the profit center mentality. Even in rough times the question is now how to invest better into R&D to get more returns faster.

Sometimes, the link between R&D work and the financial outcomes is still fuzzy, though. Agile helps, but the length of the product development cycles, followed by sales cycles and adoption time, create long feedback loops, making this link both hard to measure and less visible. It is easy to draw a line between a new client contract and a change in cash flow (it is right there in the contract), harder between a new product line and an improved LTV over the next 3 years.

So, curiously, AI is changing this in an unexpected way. I believe it reinforces the perception of R&D departments as profit centers. Nothing about the underlying economics of a software company changed, but reduced cycle length alone is a game changer. Rapid prototyping tools bring businesses closer to software development. Time to market is reduced, meaning that a startup, for example, can try more ideas to find its product-market fit. Even if not all projects are accelerated by AI, those projects that ship sooner create a clearer understanding of their financial impact, greatly helping the CTOs’ communication.

As a result, R&D is even more than before talked about as an investment. Part of it is of course the general excitement about the AI itself, but even discounting for that, I believe there is an important change in how R&D is approached from a financial perspective in general.

You could say that it took an AI revolution to firmly establish R&D as a profit center, but hey, I will take it.