More Tech Spending Moves Out of IT

Shadow IT -- the purchase and use of applications and other technology not approved or controlled by the IT organization -- used to be the bane of many organizations. These were considered inefficient budget leaks and security holes and were generally frowned upon by upper management.

But today more applications than ever are purchased and controlled by line-of-business organizations -- not by IT. It’s perfectly okay with top management, and it’s a trend that is changing the way that organizations purchase technology and how technology vendors work with their client organizations.

The trend is changing the dynamics of much of the technology marketplace, according to Gartner VP analyst Frances Karamouzis, who explained some of the changes during a session at the recent virtual Gartner IT Symposium Xpo.

By the end of 2021, Gartner forecasts total IT spending of $4.2 trillion dollars for the year on technology such as devices, hardware, software, services, and telecom. But CIOs and other IT leaders won’t have control over that entire spending budget. While there’s more technology spending in the market as businesses prioritize digital transformation coming out of the pandemic, other organizations within the business are making many of the purchasing decisions.

“More people are working on certain types of technology initiatives and enabling the enterprise, but quite often they are not reporting to an IT function, either centralized or decentralized,” Karamouzis says. “They are reporting to business units. There’s more value happening, greater innovation being created, but it’s not all driven by CIOs or IT leaders.”

Big technology vendors, especially the big cloud providers, recognize that their marketing targets aren’t just in the IT department. They can be in many different business units.

“All of these things are not being purchased by someone in IT and all the vendors in the world know that quite well,” Karamouzis says. “Every vendor in the world is looking at that target rich environment and not fully tapped market of buyers outside of IT. This leads to some very interesting market dynamics.”

For instance, it’s not uncommon for a large organization to be working with five different artificial intelligence technology providers, according to Karamouzis, who notes that different parts of the enterprise may have chosen different platforms. These business units are also more likely to employ technologists now than they have been in the past.

These changing dynamics are also leading to shifts in technology creation. Gartner is predicting that by 2024 more than one-third of technology providers -- digital giants like Microsoft, SAP, and ServiceNow -- will compete with at least one non-technology provider.

What’s more, by 2024, 80% of technology products and services will be built by those who are not technology professionals. These are people who don’t report to IT but they have budget and time and marching orders from their bosses, according to Karamouzis.

These changes are spreading technology know-how throughout the enterprise. Four out of five business technologists work for and are funded by a business unit and not by IT. One out of four job openings on LinkedIn or other job sites that are requiring Python skills are for jobs outside of IT. Two out of three jobs requiring AI skills are outside of IT. Two out of three job openings that require data science skills are outside of IT.

On the vendor side the digital giants are still there, but they are competing with many smaller vendors, or even vendors in larger vendor marketplace ecosystems.

Karamouzis says this is leading to a shift in how organizations buy technology. Enterprises had previously moved from buying products to buying solutions -- a combination of products and services. These products and solutions were purchased in a serial fashion. That doesn’t work anymore, says Karamouzis because now you must make four to 10 buying decisions concurrently to ensure different digital business initiatives lead to growth. This is part of a new way organizations buying; they are buying “outcomes,” she says.

These changes have pushed organizations more to the public cloud, making enterprises and the entire global economy increasingly dependent on internet-delivered services. The most important of these services are provided directly by or running within hyperscale cloud services providers, says Gartner VP analyst Jay Heiser.

“As everything becomes digital, virtually every aspect of society and the economy will have dependence upon the real-time functioning of a small number of public cloud services,” Heiser says. The potential for hyperscale cloud service provider failure is a classic high impact/low frequency event, according to Heiser.

“But the reliability and security of CSPs remains awkwardly non-transparent,” he says. “We have every reason to believe that most CSPs are actively and successfully addressing resilience and security.”

IT leaders looking to minimize organizational risks from public cloud use can focus on areas including controlling overspending, program risks, ability risk and technical debt, security incidents, and compliance and audit complications, according to Heiser.

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