Special Feature
Part of a ZDNet Special Feature: Tech budgets 2017: A CXO's Guide

IT budgeting 2016-17: What the surveys tell us

This year, IT professionals must add political and economic uncertainty to the list of factors influencing their budgets.

it-budgets-surveys-header.jpg
Image: Claudio Ventrella, Getty Images/iStockphoto

As IT budget time comes around again, businesses find themselves navigating uncertain political and economic waters: economic growth in China, a major driver of the world economy, remains sluggish; the US Presidential election is finally heading into the home straight, with wildly different potential outcomes; and Europe remains in a 'phoney war' phase following the UK's vote to leave the EU, with little sign of a coherent exit strategy even though Article 50 is now set to be triggered by the end of March 2017.

The 23 June 'Brexit' vote caused a rapid readjustment of analysts' IT spending forecasts for 2016.

"Canalys' IT spending forecast, based on the UK remaining in the EU, was in the range of US$90 billion to US$100 billion in the UK. Canalys now expects this to fall by up to 10 percent in 2016, based on the public sector and businesses cutting expenditure to reduce risk," said principal analyst Matthew Ball in a June 27 statement. "The outlook for 2017 could be even worse, with up to a 15 percent decline as IT budgets are set lower on the prediction of a tough year ahead and ongoing uncertainty," Ball added.

Free PDF Download

Special Report: Tech budgets 2017: A CXO's guide

You can download our full special report as a PDF in magazine format. It's free to registered ZDNet and TechRepublic members.

Read More

Canalys research analyst Claudio Stahnke outlined the wider context for this readjustment: "Trade disruption, political instability, recession, stagflation, talent pool reduction and the collapse of the EU are all potential outcomes that need consideration. The UK is taking a big gamble on its future. The unprecedented nature of the move to leave makes the true extent of the outcome an unknown. Though there are a number of different scenarios that could play out, what is certain is that we are only at the very start of defining the UK's new relationship with the EU."

Gartner's Brexit-adjusted forecast put worldwide IT spending at $3.41 trillion for 2016 -- the same level as 2015. According to Gartner, the Brexit vote will quickly affect IT spending in the UK and Europe, with other changes taking longer to unfold. "With the UK's exit [from the European Union], there will likely be an erosion in business confidence and price increases which will impact UK, Western Europe and worldwide IT spending," said Gartner research vice president John-David Lovelock in a statement. Staffing may prove the biggest headache for UK CIOs, according to Gartner: "The long-term uncertainty in work status will make the UK less attractive to new foreign workers. Retaining current non-UK staff and having less access to qualified new hires from abroad will impair UK IT Departments."

Here's how Gartner's current forecast for 2016 breaks down:

gartner-worldwide-it-spend-2015-2016.jpg
Data: Gartner / Image: ZDNet

Note that IT Services and Software are growing the most, by 5.8 percent and 3.7 percent respectively; Data Center Systems and Communications Services are relatively flat (2% and -1.4% respectively), while Devices are contracting significantly at -5.3 percent.

In a July 12 webinar, Gartner's Lovelock posted a slide depicting the different phases of the Brexit process, which emphasises that it's likely to be a long-drawn-out affair:

gartner-brexit-phases.jpg
Image: Gartner

To put Brexit in context, Lovelock noted that the UK accounts for just 5.3 percent of global IT spend, compared to 32.4 percent for the US. The rising US dollar caused a bigger drop in global IT spending in 2015 (-5.5%) than if the UK had ceased all spending on IT, he added.

Let's look at some recent surveys of IT spending in various territories -- bearing in mind that much of the data will have gathered before the Brexit vote began to influence IT executives' decision-making.

Surveys

Computer Economics IT Spending & Staffing Benchmarks

ce-front-page.jpg
Image: Computer Economics

Market research firm Computer Economics has published an annual IT Spending & Staffing Benchmarks report since 1990 and is a valuable source of IT budgeting metrics for North American organisations. The 2016/2017 report was based on survey responses collected between January and May 2016 from 201 organisations, split equally among small (operational IT budget <$5m), medium ($5m-<$20m) and large (>$20m) organisations from the US and Canada. Leading industry sectors in the survey sample were professional & technical services (16%), financial services (15%), discrete manufacturing (13%), retail & wholesale (12%) and public & nonprofit (12%).

Headline findings from Computer Economics' 2016/2017 survey are that while 62 percent of the sampled organisations are increasing their operational IT budgets this year, 23 percent are cutting them, resulting in a net increase of 39 percent (down from 52% last year) and a median year-on-year growth rate of two percent (down from 3% last year). Smaller organisations are lagging behind mid-size and large enterprises in terms of operational IT spending growth (1.7%, versus 2.9% and 2.7% respectively). As far as industry sectors are concerned, professional/technical services, financial services and healthcare services are enjoying above-average growth, while retail/wholesale, government/nonprofit and, in particular, discrete manufacturing are seeing below-average growth.

The net percentage of IT executives expecting to exceed their IT budgets this year is just one percent, but that's an improvement on last year's figure (-4%), and way ahead of the emerging-from-recession 2012 result (-15%). Another take on IT executives' outlook is the percentage who feel that their budget is 'somewhat' or 'very' inadequate to support the business, which remains high -- 60 percent, versus 56 percent last year. Overall, the organisations surveyed spent 2.5 percent of their revenue on IT (up from 2.3% last year, but broadly in line with revenue growth).

Operational IT spending per user has been dropping in recent years, from $10,205 in 2012 to $7,209 last year. The 2016 figure is $7,581, suggesting either a nascent rebound or a new 'normal' for current levels of IT efficiency.

As far as capital investment in IT is concerned, 42 percent of organisations are increasing their spend, 32 percent are cutting back and 26 percent are staying about the same. For the third year in a row, the median growth rate in capital budgets is zero, suggesting a shift away from building IT infrastructure to renting it.

Perhaps the most telling finding from Computer Economics' 2016 survey concerns IT organisations' spending plans for different areas. Business applications lead the way, with network infrastructure also prominent, but data center infrastructure and end-user technology are no longer priorities for IT executives:

ce-sectors.jpg
Image: Computer Economics

The slow growth of operational IT budgets partly reflects macroeconomic conditions, but that's not the whole story says Computer Economics: "Business leaders are seeing the value of IT and they are investing for the future. While constrained by the sluggish economy, they are investing in security, cloud, networking, business intelligence, and mobile applications."

A recurrent theme in recent years has been the need for IT executives to deliver more from less -- finding cost savings in order to invest in new, potentially business-transforming, technology. "The ongoing adoption of cloud technologies may simply be allowing IT organizations to serve more users for less money. This seems especially likely considering that IT capital spending continues to show little growth," says Computer Economics.

In North America at any rate, the expectation from this survey is that organisations will spend more of their IT budgets on business applications (especially SaaS) and networks, and less on client devices and data centres. Although IT department headcounts are not rising to any great extent, Computer Economics expects more spending on "talent, especially managers and developers who can lead the transition to cloud, mobility, and big data solutions."

Harvey Nash/KPMG CIO Survey 2016

kpmg-cio-survey-2016.jpg
Image: KPMG

Now in its 18th year, KPMG claims that the Harvey Nash/KPMG CIO Survey is the world's largest global IT leadership survey. It's certainly extensive: the 2016 survey gathered nearly 3,400 responses from CIOs and technology leaders across 82 countries.

When it comes to innovation, a majority (59%) of KPMG's respondents report being held back due to lack of resources or funding. Very large organisations, with IT budgets exceeding $250 million, are somewhat less affected, with 53 percent percent reporting resource/funding limitation, but mid-market ($100m-$250m) and smaller (<$100m) organisations find it significantly harder to fund innovation (66% and 62% respectively). As might be expected, very large organisations are more likely to have formal structures in place for funding technology innovation -- both within and beyond the IT department.

IT budgets generally are in a state of flux, KPMG reports, with 45 percent of respondents reporting budget increases in 2016, in line with recent years (see chart), and 22 percent reporting declines. As other 2016 surveys have noted, KPMG finds that increasing amounts of the overall IT budget are being controlled or managed by decision-makers outside the IT department: for 38 percent of CIOs, over 11 percent of the IT budget is beyond their control, while 10 percent control less than half of the overall IT spend.

kpmg-it-budget-growth.jpg
Image: KPMG

As far as industry sectors are concerned, technology/telecoms and advertising/PR firms spend the highest proportion of overall revenue on IT (17.9% and 17.6% respectively), while manufacturing and utilities prop up the table (3.3% and 2.9% respectively).

To facilitate innovation and responsiveness in IT development and delivery, the preferred strategy for CIOs is to implement agile technologies (59% of respondents), with buy-rather-than-build (including SaaS) coming in second (37%). SaaS is the most popular 'as a service' model for significant investment (49%), KPMG reports, but PaaS shows the most growth from the previous year (37% from 20%).

Spiceworks 2017 State of IT report

Spiceworks, the professional network for IT managers, has just published its 2017 State of IT report, which draws on survey responses from 886 respondents in North America (65%) and EMEA (35%). Companies of all sizes are represented, but the vast majority (93%) have fewer than 1,000 employees, and only five percent are enterprises with over 2,500 employees.

Spending on IT hardware, software and services will remain at 2016 levels next year in both North America and EMEA, even though 60 percent of Spiceworks' IT pros expect their company's overall revenue to increase in 2017. Most respondents (64%) also expect their headcounts to remain the same in 2017, although 30 percent will take on more IT staff.

Hardware and software projects remain the biggest spending areas, although IT pros will allocate slightly less of their budget to these areas in 2017, and significantly more on hosted/cloud-based projects (17% versus 14% in 2016):

spiceworks-budget-allocation.jpg
Image: Spiceworks

In hardware, spending on desktops is down from 21 percent of budget to 18 percent in 2017, leaving desktops, servers and laptops at roughly similar levels (18%, 17% and 16% respectively). Virtualization (15%), productivity (13%) and operating systems (13%) will be the main recipients of software investment, followed by CRM/ERP (10%), database (10%), security (9%) and backup/DR (9%).

In managed services, IT services remain top of the allocation ranking at 17 percent of the budget (down from 19% in 2016), followed by consulting (15%), storage/backup/archiving (14%) and hosting (14%) -- all of which see slight increases over 2016 levels. Email hosting (19%), online backup/recovery (14%) and web hosting (11%) will be the main investment areas for hosted/cloud-based services -- a typical mix for the largely SME-based survey population.

When asked about the drivers of new hardware, software and/or service purchases in 2017, the leading response from IT pros was end-of-life (70%), followed by growth/additional need (64%) and upgrades/refresh cycles (59%). 'New technology features' were well down the list, cited by just over a quarter (27%) of respondents.

The timing of Spiceworks' survey allowed it to ask questions aimed at political and economic uncertainty, including the economic slowdown in China and the UK's Brexit vote. Nearly half of respondents (47%) feel that global political instability causes their organization to reconsider the countries in which they store business information or data, while 37 percent will reconsider what countries they purchase tech products and services from and 28 percent feel it directly affects their willingness to make any IT purchases.

spiceworks-uncertainty.jpg
Image: Spiceworks

IT buyers in North America and EMEA are least likely to invest in products and services from Brazil, India and China, according to Spiceworks' survey (see chart). And while North American respondents see EU countries and the UK as not far behind this trio, EMEA respondents look less unfavourably on EU countries -- although there's a slight bias against the UK.

When asked about the importance of IT solutions and services to current and future business plans, the top-rated category for 2017 is security, followed by networking, storage, virtualization, software and hardware. Categories expected to show the biggest gains in importance in the future are cloud-based or hosted services, training & development and mobility/BYOD.

Tech Pro Research 2017 Tech Budgets survey

tpr-it-budgets-infographic.jpg
Image: Tech Pro Research

The latest IT budgeting report from ZDNet sister site Tech Pro Research (TPR) is drawn from 233 survey respondents representing a cross-section of industries, global regions and company sizes ranging from very small firms to very large enterprises. The survey, conducted in July, looks at the key drivers of IT budgetary decision making in 2017, examining companies' upcoming projects and business initiatives, and funding plans.

Here are TPR's key findings:

  • Anticipated 2017 IT budgets were varied: 20 percent of respondents said their company's budget was under $50,000; 23 percent said their company's budget would be between $100,000 and $499,999 and 24 percent said their company would spend between $1 million and $9.9 million on IT in the upcoming year.
  • 61 percent of respondents said their company's IT budget will be increasing in the upcoming year. The largest portion of this group said their budget will increase by 1-10 percent.
  • Some technology spending is being reallocated to individual user department budgets, and no longer shows up in the central IT budget, signaling that end business units are gaining more decision-making power in determining technology purchases.
  • Among respondents, improving efficiency and business processes, and achieving network security are major priorities for the upcoming year.
  • Protecting and securing networks and data will be respondents' top challenge in 2017.
  • When asked how vendors could better assist them with the budgetary process, almost three-quarters of respondents said they want vendors to provide clear-cut pricing and licensing models that are easy to understand.

Read more about the Tech Pro Research 2017 Tech Budgets survey.

Tools for IT budgeting

tbm-book.jpg
Image: TBM Council

If, as some of these survey results indicate, business units are increasingly making their own IT spending decisions, then it's more important than ever that CIOs have a detailed handle on capital and operating expenditure, TCO and ROI, and other measures of IT budgetary performance across the whole organisation. For one thing, if an IT deployment -- wherever it originates -- runs into problems, the CIO is likely to be tasked with sorting out the repercussions. Also, CIOs can hardly be expected to minimise 'business as usual' IT costs in order to free up resources for innovative projects -- a widespread requirement -- without the appropriate analytical tools.

This specialist area of business intelligence is called Technology Business Management (TBM), a term coined by SaaS TBM provider Apptio, which also founded a non-profit organisation, the TBM Council, to establish and promote standards and best practices. Earlier this year, the TBM Council published a book, Technology Business Management: The Four Value Conversations CIOs Must Have With Their Businesses, which describes a practical framework for delivering innovation and business value from IT investments and resources.

In a blog at the turn of the year, Apptio's CEO Sunny Gupta asked whether 2016 would be "The Year of Mainstream TBM". Given the multiple internal and external pressures CIOs are facing at the moment, hopefully the answer will turn out to be "yes".