Here's what your tech budget is being spent on

How much does the average company spend on looking after its existing IT infrastructure and how much is really spent building the next big thing?
Written by Steve Ranger, Global News Director

Firms are switching their IT spend from keeping the lights on to developing the next big thing.

While the majority of IT spending goes on maintaining existing systems, CIOs are finding ways of switching more money to new projects, research claims.

Consulting firm CEB said its survey of almost 200 organisations worldwide — accounting for a total of £46bn in IT spending — found that 57 percent of the budget will go towards maintenance and mandatory compliance activities, down from 63 percent back in 2011.

According to the survey, the average IT budget breaks down like this:

  • Innovation — eight percent: New sources of competitive advantage outside of the organisation's current line of business.
  • Business opportunity — 25 percent: Delivering new capabilities that drive business benefits and expand the organisation's current line of business, such as a new customer-facing system.
  • Maintenance spending — 57 percent: Projects designed to maintain existing service levels, reduce IT costs, or optimise existing IT assets, for example, an ERP upgrade.
  • Mandatory spending — 10 percent: Investments required for legal or regulatory compliance such as a payroll tax deduction system.

At 33 percent, the proportion of the IT budget going on innovation and business opportunity is slightly higher than it has been in the preceding three years (2013, 2012 and 2011 stood at 31, 32 and 30 percent respectively, according to the research).

Andrew Horne, managing director at CEB, said IT departments are introducing more flexible budgeting and making better use of cloud computing which allows them to reallocate budget to innovation.

The CIO's attitude towards innovation is often tempered by a big dose of caution, so much so that they have started to lose responsibility for innovation projects to other managers. Meanwhile, IT chiefs are finally waking up to the threat coming from shadow IT, where other execs have been getting more interested in developing their own digital projects outside of the control of the CIO.

Organisations said they expect to see a 3.3 percent growth in their IT budgets but CEB that many companies expand their IT spending through the year as new opportunities emerge, so actual budget growth could be more like five percent. Staffing is expected to grow by a mere 0.8 percent, however.

Horne said: "We're seeing a group of companies aggressively managing down their maintenance budgets so they can invest more in areas such as digital channels and analytics. Companies that are unable to make this budget shift and adapt to shorter, more unstable planning horizons risk being left at a competitive disadvantage."

The firm said CIOs are boosting spending on areas such as digital channels, mobile applications and social media tracking tools. Tying all of these together is a growing priority: 45 percent of IT organisations planned to have a user experience expert in place by the end the year.

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