At the beginning of this year, businesses were generally optimistic about the IT budgets they had set.
In January, based on findings from Forrester Analytics' Business Technographics survey, 45% of all Australian businesses believed IT budgets would increase in the next fiscal quarter, while nearly one in two believed it would stay the same. Only 7% thought budgets were going to be slashed.
But that dramatically changed once the coronavirus pandemic hit Australia in March.
When those same decision-makers were surveyed again in May, 45% said their IT budgets were going to decrease during the next fiscal quarter, 34% thought it would remain the same, while only 20% thought their IT budgets would increase.
This sentiment is expected to linger for a while, according to Forrester analyst Sam Higgins. He noted that a global pandemic like this has never occurred in the modern day, which has made it difficult for businesses to navigate their day-to-day operations. He added that uncertainty created by the pandemic can neither be compared to the 2008 global financial crisis (GFC) nor the country's 1990 recession.
"The difference that we have seen, and identified pretty early, was obviously that … Australia was really lucky in the GFC … it was a very specific contagion economically. This is clearly not," he said.
"There was also nothing about the GFC that was continuity-led. [COVID-19] has triggered continuity plans ... [but] continuity plans are always designed around a short, sharp event.
"Here, we've got people planning around a short, sharp event but now we're having to rework those plans with some resilience … so it's a very different starting point."
National Australia Bank's (NAB) chief economist Alan Oster has described the impact of the coronavirus on the economy as so significant that it "makes the 1990 [recession] look like it didn't exist", and as a result, businesses are naturally "not investing much at all".
"In fact, it's down about 30% in terms of business investment," he said.
Putting money where it matters most
For businesses that still have plans to invest in IT, Higgins believes this is specific to businesses that are in survival or adaptive mode, adding that decisions to ramp up their digital efforts during the pandemic have primarily focused on enabling remote working arrangements and building resiliency.
"We are seeing people pull back from some of those more emerging techs, which require a longer investment cycle and taking a more carefully managed and risk-based approach," he said.
"Because we're in a situation where risk is hard to understand and it's more uncertain, there are businesses thinking 'Maybe I'm not going to put as much into that over the next 12-18 months'. We've seen people pull right back on that exploratory -- or what you call R&D -- and strategic spending on emerging tech like artificial intelligence (AI) and machine learning in preference for automation technology, which is a little bit more tried and tested."
KPMG partner of AI and cognitive practice Jon Stone agreed. He predicts that businesses will likely press pause on experimental emerging technologies such as quantum computing, and instead, focus on getting the basics right.
"We've still got to get the fundamentals right around cloud, around the backbone -- which have to be there -- around digitisation of processes … so they're looking to accelerate in those areas," he said.
This is exactly what NextDC has started to uncover in regards to how companies are planning to invest their IT budgets.
"For many customers, that will mean doubling down on investments already made, exploring ways to optimise that infrastructure, finding more effective ways to manage and support it, to ensure they are best positioned to support a growing remote workforce on a more permanent basis, and strengthening their resilience and risk posture so they're equipped to adapt to change and disruption in the future," NextDC chief customer and commercial officer David Dzienciol said.
He highlighted how these uncharted waters are forcing technology leaders to closely examine and rethink their technology investment strategies.
"A part of that will require a re-think of outsourcing models [and] what can be operationalised and moved out of capital expenditure in favour of as-a-service models that are built by design to support the dynamic nature of digital infrastructure," Dzienciol said.
"Our customers are also focusing investment towards areas that will enable virtual operations, collaboration, and more streamlined internal functions. Just as importantly, they will look to connectivity and other SDN (software-defined networking) technologies in order to support a more distributed workforce without any degradation to the network and the user experience."
It's a similar perspective to the one shared by Data#3 boss Laurence Baynham, who said businesses are now dividing their time between making operational cost savings and strategic investments.
"With the exception of those most heavily impacted by the pandemic, many of our customers are now investing in AI to help reduce operational support costs while pushing forward with their longer-term digital transformation plans of leveraging industry 4.0 technologies to create new customer services," he said.
Meanwhile, Rimini Street Oceania general manager and GVP Emmanuelle Hose pointed out that there has been a noticeable withdrawal as many organisations are still in the survival phase.
"They're struggling to prioritise and manoeuvre their organisations with quick decisions. For them, it's still about cost savings, but also deferring projects and upgrades that are often very costly, such as cloud migrations and [those] which offer limited ROI. These CIOs cannot afford to invest in the future right now. In several instances in the region, we've seen CIOs defer big projects or in some instances cancel them in response to the pandemic," he said.
But investing in new technologies will happen irrespective of the current environment, KPMG partner of AI and cognitive Shane O'Sullivan assured.
"It's inevitable … we're asking: 'Would steam engines continue to roll out or will electricity be continued to be taken up?'. In this case, some of the technology is so powerful and compelling that it will continue to be taken up," he said.
Research in KPMG's The Enterprise Reboot report indicates that over 75% of enterprises globally plan to spend up to $50 million on emerging technologies, including 5G, AI, blockchain, edge computing, hybrid and multi-cloud, automation, and smart analytics, and the trend in Australia is similar to the rest of the world, particularly in the areas of blockchain, AI, and edge computing.
"There are pretty strong signals that our strategy hasn't changed with COVID. It's just become more acute, amplified, accelerated, and I think that goes to our point," Stone said.
"Australian businesses are getting the fundamentals around how do we manage the nutrition of customers, how do we bring the overall cost of acquisition, cost of operation -- those key financial outcomes -- those are still there while we manage the survival aspect. Those strategies around digital, cloud, and emerging tech are still there."
The only difference now is the pace of adoption, according to O'Sullivan, who said IT investment would depend on the sector, the leadership, and their risk and innovation appetite.
"What it comes down to is the attitudes of leadership -- be it CEO, CIOs -- and how they approach it. The companies that have got progressive leadership teams are in good positions," he said.
Macquarie Government managing director Aidan Tudehope shared a similar sentiment, saying he was confident that while investments in emerging technologies and areas such as industry 4.0 and AI have momentarily been put to the side, the importance around investing in these technologies has not diminished.
"When normality or enough semblance of it resumes, we'll likely see a huge increase," he said.
"In a way, it's actually positive that CIOs have needed to pause and reflect before investing further into these technologies. In this interim, CIOs are guiding their organisations' investment in IT infrastructure, improving cybersecurity, and for government agencies, being more mindful and aware of data sovereignty. This reflective focus is essential now and will improve how we integrate new and emerging tech in the future."
For Telstra, it has already seen an acceleration of business investments in these emerging tech areas.
"In many ways, the investment in more capabilities has been accelerated during this period," a Telstra spokesperson said.
"As the digital interactions have increased dramatically, enterprises are ramping up the dialogue on what the new technologies can bring, including 5G, edge compute -- which is an emerging area of how performance and resiliency of networks and applications will look in the near future -- sensor networks, and IoT in the industry, the digital office, AI, etcera. Thankfully, we've been thinking about this for a while with our work across all these areas."
The winners and losers
The decisions surrounding IT investments going forward will also differ between sectors, Higgins said.
On one hand, industries such as hospitality, the arts, and aviation came to a grinding halt when the pandemic hit. This meant that IT investments for these companies slowed significantly.
Meanwhile, there have been other sectors, such as retail, education, and health that have unexpectedly ramped up their IT investments to keep up with demands during the pandemic.
"Take Qantas, they're a significant business in Australia, they spend a lot on tech -- they're effectively out of action. On the flipside, Woolworths, arguably Australia's largest employer, is throwing people at problems because they need it, and are therefore increasing their base level of spend," Higgins explained.
In addition to considering how IT budgets should be invested, companies have taken similar precautions when it comes to planning these budgets.
"Things are moving so quickly," Stone said.
"People are now planning on a monthly cycle.
"The data says, 'No, the budgets are there and they're increasing', but on the ground, there's a little bit of that consideration of what is our next three-month, six-month revenue forecast, and therefore, should we be dialling some of that investment down or holding it over? … there's definitely more scrutiny on the investment."
He continued, explaining that IT budgets -- at least in the short term -- were unlikely to include large, multi-year projects.
"There's not an appetite for those now. We're looking for much shorter returns … now there's a recognition the target the enterprise needs to get to is to move more to enterprise-level albeit still delivering in that nimble, agile way of 60-90 day increments."
Waiting for the cliff drop
With the pandemic still ongoing, Oster warned the full effects have yet to be felt, suggesting to businesses that it is something they will need to prepare for.
He highlighted that while government-led stimulus handouts, such as JobKeeper, have helped soften the blow of the pandemic, those initiatives will eventually run dry.
"Consumer household balance sheets are actually looking better because they're getting more money from the government in some cases, or are at least filling in the hole … [but] as we go forward, that's going to be one of the problems," Oster said.
"That worries us as to what that means for September to December.
"The other thing that we are talking about is a 9.7% unemployment rate by January, or, the RBA (Reserve Bank of Australia) is talking 10%."
So when are we likely to return to normal? Oster's short answer is: "When they get a vaccine."
"We're not really thinking about things turning back to almost normal, but at a lower level, until at least back end of next year," he said.
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