Digital transformation initiatives have had a major impact on IT budgets in recent years, with organizations projected to invest more in technology across both IT and lines of business in 2019 to remain competitive. With 2020 approaching, companies must consider what technologies should be built into budget plans to gain the biggest return on business goals in the year ahead.
Organizations of all sizes and industries are struggling with technology budgeting, due in large part to a disconnect between the IT department and the finance team, said Kris Seeburn, an independent IT consultant who was not a member of the CIO Jury this month.
"The annual IT budget meetings aren't going to cut it any longer with the rate technology evolves and develops," Seeburn said. "In 2020, budgeting for technology needs to become an ongoing conversation around need and cost that evolves with the rate of change. Procuring technology is not a game of catch-up, it's a proactive shift to a culture dependent on technology."
SEE: Tech budgets 2020: A CXO's guide (ZDNet/TechRepublic special feature) | Download the free PDF version (TechRepublic)
We polled the TechRepublic CIO Jury to determine how IT budgets may shift in 2020. When asked, "Does your IT budget change significantly from year to year depending on technology advancements (such as AI, IoT, big data, etc.)?" only four tech leaders said yes, while eight said no.
In the "yes" camp, Michael Hanken, vice president of IT at Multiquip Inc, said "we are shifting funds into IoT, AI, and low-code development."
At RRD, IT budgets are determined by two factors: What is needed to ensure continued operations of the company, and what technology investments are needed to achieve objectives in terms of growth and cost optimization, according to Ken O'Brien, executive vice president and CIO.
"In other words, our technology budget doesn't change significantly based on technology advancements, but instead, we make strategic determinations based on our business needs," O'Brien said. "We always reserve funding for modernization and advancement of the overall technology stack and work with our business partners to differentiate our products and services with technology innovations."
Keith Golden, CIO, Econolite Group, reported a similar experience.
"Our IT budget is divided between 'keep the lights on' spend and new initiative outlays," Golden said. "The first component is fairly static, the second varies a great deal year to year, depending on technological changes and corporate needs. This year and next we are moving our entire ERP/CRM backbone to the cloud [via Microsoft Dynamics 365] for our products [manufacturing & supply chain] and services lines of business. Modernization and digital transformation are driving those spends."
SEE: IT project management: 10 ways to stay under budget (free PDF) (TechRepublic)
Budgeting changes are seen on the client end as well, as many are reallocating funds to facilitation experimentation and innovation projects, often in close collaboration with the business side, said Hans de Visser, vice president of solutions at Mendix.
"While overall IT budgets are rising with low single-digit percentage, the spend on digital initiatives to enhance customer engagement, and to launch new products and services is growing faster with double-digit percentages," de Visser said. "In terms of emerging technologies, we see a rapid increase in spend on AI and IoT."
While budgets have shifted to include software subscription costs, these shifts have not been staggering, said Dan Gallivan, director of information technology at Payette. "Just a general shift trend as non-capital expenses increase and capital spending has been decreasing," he added.
The initial year of a new technology initiative usually includes a high cost due to the new implementation, but after that, a recurring increase is routine, as is standard in the "as a Service" environment, said Matt Metcalfe, vice president of information technology for Northwest Exterminating, who was not a member of the Jury this month.
Legacy technology plays a major role in the ability to budget for new projects, said John C. Gracyalny, vice president of digital member services at Coast Central Credit Union.
"There is definitely some impact of new tech on the IT budget, but I wouldn't consider it 'significant' when compared to the cost of keeping legacy systems updated," Gracyalny said. "Modern programming techniques are very efficient leading to lower software costs, and modern hardware is a fraction of the cost of legacy boxes."
While corporate change moves slowly, in the future, organizations will need to realign themselves to take advantage of technology by working interdepartmentally to strategize on key goals.
"The need to work as an integrated team is the way forward, rather than CFO's continuous ranting," Seeburn said. "Organizations also need to revisit their ongoing strategy, or else it may not move in the right direction."
Members of this month's CIO Jury included:
- Michael R. Belote, CTO, Mercer University
- Michael Hanken, vice president of IT, Multiquip Inc.
- Jerry Justice, CIO, Benesch, Friedlander, Coplan & Aronoff LLP
- Jeff Kopp, technology director, Christ the King Catholic School
- John C. Gracyalny, vice president of digital member services, Coast Central Credit Union
- Ken O'Brien, executive vice president and CIO, RRD
- Keith Golden, CIO, Econolite Group
- Hans de Visser, vice president of solutions, Mendix
- Joel Robertson, CIO, King University
- Craig Lurey, CTO and co-founder, Keeper Security
- Chris Mertens, director of IT, Hamilton County Government and Judicial Center
- Dan Gallivan, director of information technology, Payette