Last year's edition of this article began by observing that 'businesses find themselves navigating uncertain political and economic waters' (due, then, to sluggish economic growth in China, the US Presidential election and the UK's vote to 'Brexit' from the European Union).
A year on, the international seas are hardly any calmer: China's economic growth may have picked up, but the region is currently preoccupied with North Korea and its nuclear posturing; in the US, the Trump administration's 'America First' doctrine is beginning to reshape the business landscape; and the UK government's detailed plans for Brexit remain frustratingly unclear even after triggering Article 50 in March, embarking on negotiations with the EU27 in June and a 'clarification' speech from Prime Minister Theresa May on 22 September in which a two-year transition period was mooted.
In March, Gartner hosted a webinar entitled Impact of Geopolitical Shifts on Business & IT Services Market Dynamics and set out the key implications for those involved in buying and selling IT infrastructure and services.
Gartner highlighted five key Trump administration policy areas: immigration reform; trade reform; tax reform; regulatory reform and fiscal stimulus. On immigration reform, for example, Gartner suggested that as the demand for (home-grown) talent rises, the price per professional hire will rise. Tighter immigration controls may also accelerate IT buyers' adoption of automation, says the analyst firm. On trade reform, taxes on imported products or services could make budgeting harder for impacted companies, while changes to corporate tax policy could see budgets shift to discretionary projects and capital expenditures increase. Here's the analyst firm's summary of the potential 'ripples' from these and other current US policies:
As far as Brexit is concerned, Gartner stressed that this will not only affect UK buyers of IT services, but 'probably' European buyers and 'maybe' all international buyers too.
"You might think that the obvious answer is, the British are going to be affected because anything they import or export with the EU could potentially be implicated by these trade changes," said Gartner research director Neil Barton. "So, for example, there's a lot of growth in UK customers buying near-shore application development services from Eastern Europe. That's going to be more complicated than it was before."
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"But of course, there are also people within the European Union who buy services, or software, or software-as-a-service, from the UK, so there will be some impact on them as well," Barton continued. "And even if you're outside the UK and outside the EU, this is still something that might affect you, because the UK's membership of the EU does not just control how the UK trades with the EU countries -- it also controls how the UK trades with countries outside the EU as well. So when when the treaties lapse that govern import/export rules into the UK, we will also have to put into place new rules for importing and exporting with the US, Russia, Australia, Brazil and all those countries."
At the time of writing (late September 2017) we are no clearer on what these new trade arrangements will be.
Gartner highlighted taxes, movement of people, regulations and standards, quotas and exchange rates as post-Brexit issues that will potentially impact the provision and purchase of IT services.
Businesses notoriously dislike uncertainty, so we might expect to see some evidence in companies' plans for their 2017-18 IT budgets -- perhaps holding back on more speculative digital-transformation projects in favour of servicing existing operations. One pointer came from Gartner's webinar, during which attendees were asked: "Will any of the content from this webinar regarding geopolitical issues change your approach to your IT portfolio?" The answer selected by 87 percent of respondents was "Proceed with more caution. Adopt a cautiously optimistic buying pattern (i.e. make purchases but limit long-term decisions)."
Gartner's latest worldwide IT spending forecast (July 2017) puts the total at $3.48 trillion for this year (up 2.4% on 2016), rising to $3.6 trillion in 2018 (up 3.5% on 2017). The fastest-growing sectors are Enterprise Software (7.6% in 2017, 8.6% in 2018) followed by Devices in 2017 (3.8%) and IT Services in 2018 (4.7%):
"With the increased adoption of SaaS-based enterprise applications, there also comes an increase in acceptance of IT operations management (ITOM) tools that are also delivered from the cloud," said John-David Lovelock, vice president and distinguished analyst at Gartner, in a statement. "These cloud-based tools allow infrastructure and operations (I&O) organizations to more rapidly add functionality and adopt newer technologies to help them manage faster application release cycles."
Computer Economics (North America)
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 2017/2018 report was based on survey responses collected between January and May 2017 from 202 US and Canadian organisations -- 38 percent small (operational IT budget <$5m), 30 percent medium ($5m-<$20m) and 32 percent large (>$20m). Leading industry sectors in the survey sample were manufacturing (21.3%), government/non-profit (17.8%) and professional/technical services (14.4%).
The research firm's top-line findings show that, as in the 2016/17 survey, "IT organizations continue on a path of steady but modest growth in operational budgets while capital budgets and hiring are essentially flat." Computer Economics attributes this mostly to the adoption of cloud computing, rather than worries about the geopolitical landscape: "With the shift to cloud computing, even at this early stage, and the increasing use of virtualization and automation for routine operations, we take it as a sign that IT organizations are enjoying productivity gains that allow them to moderate their need for large increases in IT spending."
Nearly two-thirds (65%) of survey respondents reported that they were increasing IT operational spending, while 18 percent were cutting their IT budgets. The resulting net percentage figure of 47% is up from 39% in 2016. The growth in IT operational spending is up in 2017 too, at 3% compared to 2% in 2016.
Despite generally rising operational IT budgets, over half (52%) of respondents felt they lacked the funds to adequately support the business. Computer Economics points out that this is a decrease from 2016's 60 percent and suggests that "For now, refreshing technology, getting rid of legacy systems, strategic outsourcing, and the use of cloud infrastructure and applications are an easier way to make room in the budget than going to the CFO and asking for a large increase."
Reflecting this 'do more with less' approach, the survey also reported a five-year low in IT spending per user -- $6,843, down from $7,231 in 2016.
In contrast to IT operational spending, which is broadly rising, IT capital spending (as a percentage of the total) continues to decline steadily in Computer Economics' surveys:
Once again, for Computer Economics, the usual suspects are behind this trend: "Virtualization, the cloud, and other technologies are lessening the need for capital expenditure growth even when times are good. While existing equipment must still be refreshed, the years of large capital expenditures in order to handle growth are likely gone, due to the elasticity and efficiencies of newer technologies."
Given the frequency and scale of security breaches and cyber-attacks, it's no surprise to find 'Security/privacy' heading up Computer Economics' spending priority ranking (as it did in 2016, and no doubt will in 2018):
Cloud applications come a close second after Security/privacy, followed by Cloud infrastructure. When it comes to new spending, the survey finds Business applications in clear first place (54%), followed by Networking (32%), IT personnel (29%), End-user technology (17%) and Data center (9%).
Harvey Nash/KPMG (global)
Now in its 19th year, the Harvey Nash/KPMG CIO Survey is claimed to be the world's largest global IT leadership survey. It's certainly extensive: the 2017 survey gathered 4,498 responses from CIOs and technology leaders across 86 countries.
The majority (64%) of survey respondents agree that the global political, business and economic environment has become more unpredictable and are adapting their technology plans accordingly. The most popular response to these uncertain times was to create a more nimble technology platform, followed by more efficient budget planning and increased investment in cyber security:
Drilling into more detail, Harvey Nash/KPMG notes that CIOs at larger organisations are more likely to invest in cyber security and move offshore resources closer to home, but feels that, overall, "there is a strong sense of 'wait and see' by many IT leaders."
Those IT leaders are also making their way up the corporate pecking order: for the first time in a decade, the survey reports that over seven in ten respondents (71%) feel the CIO role is becoming more strategic, while 62 percent now sit on the executive board -- an all-time high (the figure was just 38% in 2005).
But even with sufficient budget for hiring, skills shortages seem to a fact of CIO life: only three of the last 12 Harvey Nash/KPMG surveys had less than half of respondents reporting this as an issue. In the 2017 survey, big data/analytics was most in-demand skill, followed by business analysis and enterprise architecture:
Despite these manifest skills shortages, 44 percent of Harvey Nash/KPMG's respondents plan to increase their technology headcount in 2017 -- a figure that has changed little in seven years.
For most respondents, IT budgets have grown (46%) or remained flat (33%) over the previous year -- almost the same result as in 2016. Shadow IT, where IT spend is controlled by influencers outside the IT department, is -- like skills shortages -- increasingly a fact of life for CIOs. Four in ten IT leaders now report that more than 10 percent of the IT budget is outside their control:
Looking forward, nearly half (46%) of IT leaders expect their budgets to increase in the next 12 months, but those at large organisations (>$250m turnover) are less optimistic about future budget growth: only 29 percent expect to see an increase, 34 percent expect no change, while 37 percent forecast a decrease. The most optimistic industry sectors are Leisure, Technology, Healthcare and Professional services, while public sector organisations -- Energy, Telecommunications and Education -- are the least bullish.
Outsourcing and offshoring remain in play for CIOs, with 40 percent and 48 percent planning to increase spending in these areas respectively. The biggest increase in the reasons given for outsourcing (11.4%) was "Improves flexibility in use of resources", which could be seen as a response to a less predictable business environment. Application development (64%) and maintenance (51%), followed by data centres (40%), are the leading outsourced activities among Harvey Nash/KPMG's respondents.
In May, analyst firm Forrester produced a detailed forecast for the US technology market, entitled US Tech Market Outlook For 2017 And 2018: Mostly Sunny, With Clouds And Chance Of Rain. The report begins by pointing out that, as noted earlier, "CIOs and other tech decision makers face a positive economic environment, but an uncertain political environment in 2017 and 2018." Key takeaways from the report are that spending on software will grow by nearly 10 percent in 2017 and 2018, thanks mainly to increased cloud adoption, while consulting services and staff budgets will rise by 6-7 percent. However, total US tech spending growth will only be around 5 percent, thanks to barely rising budgets for outsourcing, hardware and telecom services.
Here's how Forrester divides up the US software market, which is currently the main driver of the overall tech market:
In the $172 billion applications sector, business intelligence, collaboration and other/new enterprise process apps will grow fastest, according to the analyst firm. Consulting and systems integration services will follow this software growth, says Forrester, while CIOs are bolstering internal staff and de-emphasising outsourcing, except for cloud platforms. As far as hardware -- servers, storage, PCs and peripherals -- is concerned, the analyst firm foresees a small spending upturn in 2018.
Faced with the task of supporting businesses through uncertain political and economic times, CIOs are increasingly turning to cloud infrastructure and services in order to increase flexibility and relieve pressure on capital budgets. Software is currently the main growth area in enterprise IT spending, while security and privacy remains a major priority. CIOs are increasingly influential at board level, but many still feel their budgets are inadequate to support the business. IT skills shortages are an important complicating factor, particularly in big data and analytics.
Whether the global business environment becomes any more predictable through 2018 remains to be seen, but CIOs would probably be wise to continue to proceed with caution.
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