Top Business Needs Driving IT Spending Today
Cutting costs alone won’t save the company in times of economic crisis. So, what will?
![Pink smiling Piggy bank on mandala kaleidoscope from money. Pink smiling Piggy bank on mandala kaleidoscope from money.](https://eu-images.contentstack.com/v3/assets/blt69509c9116440be8/blt770ff44273754c0a/64cabf7d8ebff57cda82cc07/00-piggybank-_Oleksandr_Kovalchuk_-alamy.jpg?width=700&auto=webp&quality=80&disable=upscale)
Oleksandr Kovalchuk via Alamy Stock
Inflation, rising interest rates, tumbling stock prices, pandemic hangovers, changing consumer habits, the Great Resignation, and a pending recession all add to the pressure on IT to cut costs.
But options are limited, and decisions are hard. Take inflation, for example, which is just one of the challenges that chief information officers face right now. According to Robert Naegle, a Gartner analyst, CIOs only have three possible responses:
Spend the same and do less
Spend more and do the same
Or try and optimize in order to spend the same and do the same.
“One of the most immediate effects of inflation felt by CIOs will be vendors implementing, or preparing for, price increases that will impact IT budgets,” Naegle says.
But that’s not the only inflationary impact delivering punishing blows to IT budgets. For one thing, hiring and retaining talent remains an ongoing challenge. “It is becoming an even more complex problem due to the increasingly competitive labor market and higher wage expectations that result from inflation,” Naegle says.
Higher labor costs and ongoing staff shortages are forcing IT to consider buying even more technology.
“With the possibility of an economic downturn looming ahead of us, businesses are looking for ways to optimize operations without adding more people to the equation,” says Eric Ayala, General Manager of North America and senior vice president of Novidea, a cloud-based insurance agency management platform built on Salesforce.
However, cost cutting can only take you so far. To survive and thrive requires IT to do more. So, what’s driving IT spend today and what technologies are companies investing in? Given the gravity of the situation today, will these new investments drive companies across the finish line or off a cliff? Time will tell.
Meanwhile, let’s take a look at what’s driving IT to get off some of their dwindling piles of cash…
Companies are looking to realign their physical facilities to better fit current workforce needs.
According to Gallup survey, 53% of responding companies expect to have a hybrid work arrangement in place going forward, while 24% expect to work exclusively remotely and therefore are unsure if they need a centralized workspace at all.
For most companies, the hybrid workplace model has won the post-pandemic shakeout on the shape of the future of work -- at least for now.
The hybrid work model centers on scheduling employees to produce work in a mix of remote and on-premises duties. Even though Gallup found that “there is no clear consensus from employees about how to define hybrid work,” the effect on how organizations operate is likely permanent and profound. This means there is no going back to the old ways and waiting to make the necessary changes will only accrue more costs.
Smaller workspaces are needed for hybrid work models and new scheduling strategies, such as hoteling and hot desking, squeeze more productivity from the reduced square footage. Hoteling requires an employee reserve a desk in advance (but usually not to designate a specific desk). Hot desking means employees simply pick an available desk when they arrive at the workplace. The first requires a reservation, the second does not.
Pandemic-purchased technologies must be adapted or augmented to accommodate this change in workspace scheduling too, making this a top area for current IT expenditures.
According to a new FiberLight survey, 70% of companies are looking at expanding or relocating their businesses “in the next 3-5 years, by moving out of expensive cities and to more cost-effective locations.” To do so requires many of them to invest more in hybrid and cloud infrastructure.
Specifically, this study found that companies are spending money in the following infrastructure areas to accommodate their downsizing moves:
Data Center (29%)
Public Sector (22%)
Cloud Migration (20%)
Dedicated Internet Access (15%)
Dark Fiber (12%)
The high view of spending changes on the cloud shows a mixed bag of favored investment areas, at least according to the Nutanix 2022 Enterprise Cloud Index report.
Specifically, that report found the following business reasons to be driving the specified IT investments:
Improving remote work and collaboration (40%)
Supporting customers better (36%)
Strengthening business continuity (35%)
Bolstering security posture (62%)
Implementing AI-based self-service technology (56%)
Upgrading existing (pandemic-fueled) IT infrastructure (53%)
Future investments already penciled in on purchase planning include:
Improving security posture as a top IT priority (49%)
Implementing 5G (46%), likely to support hybrid and remote work
Expanding storage (45%), and
Improving multi-cloud management and operations (44%)
If the pandemic drove home one lesson, it was that digitalization is a must-do and not a wish list line item in IT plans. But there’s more to digitalization than just digital twinning.
“The top areas of IT business spending are 5G and edge cloud,” says Jodi Ellis, Head of Global Product Marketing at Inseego, a producer of smart device-to-cloud solutions with a focus on extending the 5G network edge.
Processes have to change too, and IT decision-makers may need to more tightly sync their efforts with those of software developers.
According to a recent Styra report, surveyed organizations are spending the money to make the synchronized technology dance happen. And here’s the high view on where they’re spending it:
Ninety-seven percent of IT decision-makers and 96% of developers said their companies plan on expanding use of cloud-native and open-source tools over the next 12 months
More than three-quarters of IT decision-makers (77%) said their organizations are focused on enhancing data privacy security measures over the next 12 months.
Developers thought the top priority should be on cloud application initiatives, but 51% also believed data privacy security measures should be enhanced
A whopping 67% of developers think migrating legacy applications to the cloud in the next 12 months should be a top priority.
IDC projects that 2022 spending on digital transformation (DX) will reach1.8 trillion US dollars, an increase of 17.6% over 2021.
“As organizations accelerate their pursuit of a digital-first strategy, they are channeling these investments into both internal operations and external direct engagement. The investments in internal operations are largely focused on improving efficiency and resilience while customer experience transformation has become a DX priority for many companies,” said Craig Simpson, senior research manager, Customer Insights & Analysis at IDC, in a recent BusinessWire article.
We’ve all heard of the truly dismal AI failure rates, but the consensus appears to blame the humans not the machines for any missteps. And frankly, that’s how it should be considering we’re not talking about HAL taking over the ship, but the failure of netting a good business result that commonly is traceable to a total communication failure between business leaders and data scientists.
In any case, LXT's first annual executive survey called The Path to AI Maturity discovered IT is still willing to put money on machine brains. Over a third of big dollar companies (read ‘those companies with jaw-dropping revenues’) are spending between $51-$100 million on AI. Seven in 10 organizations are spending $1 million or more of their budget on AI.
LXT says that this group of surveyed companies are primarily using AI to innovate, scale up, and drive competitive advantage, and to gain internal efficiencies.
IDC says current AI efforts in companies of any size are focused on solving business process problems and that these include human augmentation to speed work along, and process improvement in areas like planning and forecasting, and managing decisioning outcomes.
"Overall, AI plus human ingenuity is the differentiator for enterprises to scale and thrive in the era of compressed digital transformation," said Ritu Jyoti, group vice president, Worldwide Artificial Intelligence and Automation Research at IDC.
Cash purchases fell to 19% of all transactions in 2020, but cash isn’t yet deserted as a payment method. According to The Federal Reserve’s 2022 Findings from the Diary of Consumer Payment Choice, the average number of cash payments increased from six to seven payments and accounted for 20% of all payments in October 2021. “Overall, results showed that a substantial portion of the [US] population continued to use cash to make everyday purchases and to hold cash as a store of value,” according to that report.
This requires IT to maintain any necessary point-of-purchase and related legacy tech to support cash transactions, as well as to adapt any modern fintech to account for such transactions and related processes.
Crypto remains a bit of a crapshoot, but companies are trying to do something with that, too, which means fintech investments must accommodate or be adapted to these payment forms. Juniper Research “found that nearly 6 in 10 (57%) of large corporations are either actively considering, or are in the process of, deploying blockchain technology.”
However, the analysts sounded a warning about such investments: “In many cases, systemic change, rather than technological, might be a better and cheaper solution than blockchain, which could potentially cause significant internal and external disruption.”
Many companies do not yet feel comfortable in paring down payment options as consumer preferred payment forms are still a moving target. Look for payment bloat to become a problem in terms of support and expense.
But in general, IT budgets are finding digital and cash payment technologies to continue to be a significant line item in their budgets.
Cash purchases fell to 19% of all transactions in 2020, but cash isn’t yet deserted as a payment method. According to The Federal Reserve’s 2022 Findings from the Diary of Consumer Payment Choice, the average number of cash payments increased from six to seven payments and accounted for 20% of all payments in October 2021. “Overall, results showed that a substantial portion of the [US] population continued to use cash to make everyday purchases and to hold cash as a store of value,” according to that report.
This requires IT to maintain any necessary point-of-purchase and related legacy tech to support cash transactions, as well as to adapt any modern fintech to account for such transactions and related processes.
Crypto remains a bit of a crapshoot, but companies are trying to do something with that, too, which means fintech investments must accommodate or be adapted to these payment forms. Juniper Research “found that nearly 6 in 10 (57%) of large corporations are either actively considering, or are in the process of, deploying blockchain technology.”
However, the analysts sounded a warning about such investments: “In many cases, systemic change, rather than technological, might be a better and cheaper solution than blockchain, which could potentially cause significant internal and external disruption.”
Many companies do not yet feel comfortable in paring down payment options as consumer preferred payment forms are still a moving target. Look for payment bloat to become a problem in terms of support and expense.
But in general, IT budgets are finding digital and cash payment technologies to continue to be a significant line item in their budgets.
-
About the Author(s)
You May Also Like