← External Forces: Industry Specific (all topics)
ER&D vs IT budget cycles
What it is
Engineering research and development services are funded from a client's product development budget rather than its IT budget. R&D spend follows product programmes and platform launches, so it is committed years ahead but cut hard when a client retrenches
Programme ramps typically take 6-12 months from award to full billing
Impact on industries
- R&D budgets are more strategic and less discretionary than IT spend, since cutting them delays products rather than deferring an upgrade
- Engagements are longer and stickier, because engineers embedded in a product programme carry domain knowledge that cannot be transferred quickly
- Long ramp cycles mean revenue lags order wins by two to four quarters, so reported growth trails the actual demand turn in both directions
- European OEM R&D cuts hit hard because automotive is a concentrated vertical, and specialist engineers in embedded and electrification domains are scarce and expensive