Since 2016, discussions and forecasts of IT budgets for enterprises and other organisations have taken place under a cloud of uncertainty. In the US, this currently revolves around trade disputes and other geopolitical tensions, while in Europe the still-unresolved Brexit saga casts a shadow over the UK's economic prospects.
In its World Economic Situation and Prospects as of mid-2019 report, the UN's Economic Analysis & Policy Division downgraded its global economic growth projections for 2019 to 2.7 percent, from 3.1% in 2017 and 3.0% in 2018. World gross product growth for 2020 is forecast at 2.9%:
"While part of the growth slowdown reflects temporary factors, downside risks remain high. Prolonged trade disputes could have significant spillovers, including through weaker investment and the disruption of production networks," the UN report said. "These persistent macroeconomic risks are compounded by greater frequency and intensity of natural disasters, reflecting the rising effects of climate change."
US trade tensions with China have dominated the headlines, many centring on Huawei and the alleged security threat from its 5G network equipment. But the US has also targeted the EU, imposing tariffs on steel and aluminium, and threatening to do so on aircraft parts and certain foodstuffs. The threats keep coming: at the signing of a US-EU trade deal on beef on 2 August, President Trump said: "And we're working on a deal where the European Union will agree to pay a 25 percent tariff on all Mercedes-Benz's, BMWs, coming into our nation. So, we appreciate that," before adding: "I'm only kidding. They started to get a little bit worried."
US posturing aside, the mid-2019 UN report suggests that "In Europe, economic activity will be dampened by weaker confidence, softer external demand and prolonged uncertainty surrounding Brexit developments."
That uncertainty will not have been alleviated by the installation in July of Boris Johnson to succeed Theresa May as Prime Minister. At the time of writing (mid-August), Johnson's administration appears determined to leave the EU with or without a withdrawal agreement -- "do or die" as the new PM put it -- by 31 October. The UK's Office for Budget Responsibility (OBR) recently predicted that a no-deal Brexit would tip the economy into recession, adding "around £30 billion a year to borrowing from 2020-21 onwards and around 12 per cent of GDP to net debt by 2023-24."
As if on cue, in Q2 2019, the UK economy saw negative growth (-0.2%) for the first time since Q4 2012:
Hot on the heels of these UK figures, the German Federal Statistical Office announced that GDP decreased by 0.1% in the second quarter compared to Q1 2019. Although the US has delayed some tariffs on some Chinese imports (including mobile phones, laptops and monitors) until December, there is now widespread talk of a possible global recession.
How do these political and macroeconomic factors affect the prospects for IT spending around the world?
Worldwide IT spending forecasts
Tech analyst Gartner's latest worldwide IT spending forecast (July 2019) projects a total of $3.74 trillion in 2019 (0.6% growth over 2018) and $3.88tn in 2020 (3.7% YoY growth).
"Despite uncertainty fueled by recession rumors, Brexit, trade wars and tariffs, we expect IT spending to remain flat in 2019," said John-David Lovelock, research vice president at Gartner. "Although an economic downturn is not the likely scenario for either 2019 or 2020, the risk is currently high enough to warrant preparation and planning. Technology general managers and product managers should plan out product mix and operational models that will optimally position product portfolios in a downturn should one occur," Lovelock added.
Enterprise software will see the highest growth in 2019 and 2020 (9% and 10.9% respectively), while devices, communications services and data center systems will all recover somewhat in 2020 from declines in 2019, according to Gartner. The analyst firm sees the cloud spreading its tentacles further into the enterprise, encompassing areas like office suites, content services and collaboration services. "Spending in old technology segments, like data center, will only continue to be dropped," Lovelock said.
IDC's ICT Spending Forecast for 2018-2022 puts the worldwide spend at $5.1 trillion dollars in 2019 (5.2% YoY growth), rising to $5.3tn in 2020 (5.6% YoY growth). The analyst firm breaks ICT spend into two broad categories -- 'traditional' and 'new' technologies. Cloud, mobile, social and big data/analytics are seen as 'traditional' technologies, while the new kids on the block include AI, robotics, AR/VR and next-generation security.
Between 2019 and 2022, IDC expects double-digit growth from these new technologies, with traditional tech at around 2.8%:
IDC sees a 'natural cohesion' between traditional and new technologies: "Cloud and mobile enable rapid deployment and connectivity, while also cutting costs and complexity in legacy operations which allows businesses to focus on new digital innovation," says the analyst firm. Such synergies, along with the continuing need for professional services associated with the roll-out of digital transformation solutions, will mean that the impact of new technologies is "much bigger than revenues associated with discrete categories such as IoT sensors, 3D printers or drones," IDC says.
What the surveys say
Computer Economics IT Spending & Staffing Benchmarks 2019/20
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 2019/2020 report was based on survey responses collected between January and May 2019 from 232 US and Canadian organisations -- 32 percent small (IT operational budget <$5m), 34 percent medium ($5m-<$20m) and 34 percent large (>$20m). Leading industry sectors in the survey sample were manufacturing (23.8%), financial services (18.6%) and government/non-profit (15.2%).
Top-line findings from Computer Economics' 2019/20 survey are similar to last year: organisations are migrating to the cloud and increasing spending to reap the benefits. The median level of IT operational spending growth was a modest 3.1% compared to 2.8% in 2018/19, with 68% of organisations reporting increases and 20% cutting their IT operational budgets. Small organisations lead the way, with growth at 3.5% (compared to 3.0% for midsize and 3.2% for large organisations), while manufacturing is the most buoyant sector with 5% growth (followed by professional/technical services with 4% and financial services at 3.3%).
Across all company sizes and sectors in the survey, 52% of CIOs feel that their IT operational budget is adequate (49%) or more than adequate (3%) to support the business, while 48% judge it to be somewhat (40%) or very (8%) inadequate. Since operational budget increases are not large, Computer Economics concludes that "For now, refreshing technology, lessening dependence on legacy systems, strategic outsourcing, and the use of cloud infrastructure and applications are an easier way to make room in the budget, rather than going to the CFO and asking for a large increase." This drive for increased efficiency underpins the finding that IT operational spending per user has declined from $8,183 in 2018/19 to $7,569 despite user counts rising at many companies.
The picture on capital spending is similar to last year, with 49% increasing capital budgets (vs 47% in 2018/19), 29% decreasing (the same as last year) and 22% staying the same (vs 24% last year). "For the most part," says Computer Economics, "organizations appear to be spending just enough to maintain normal equipment-refresh cycles, not growing their on-premises infrastructure." Capital budgets as a percentage of total IT spending did increase slightly across all sectors (19% vs 18%), but Computer Economics still feels that, beyond equipment refresh, "the years of large capital expenditures in order to handle growth are likely gone, due to the elasticity and efficiencies of newer technologies."
What are North American organisations spending their IT budgets on? It's no surprise to find that cloud applications and cloud infrastructure are the top priorities, with a net 80% and 61% respectively increasing spending in these areas. Legacy systems integration (24%) and data center automation (1%) are the least popular spending options:
The cloud migration message is reinforced by Computer Economics' data on cloud subscription rates. In 2017/18, just 9% of organisations reported that at least half of their spending on business software was for cloud subscriptions; this number has risen to 29% in the 2019/20 survey, comprising 17% who spend between half and three-quarters of their software budget on cloud subscriptions and 12% who spend 75-100% in the cloud:
"We expect this trend to continue as there are few remaining arguments against cloud applications. Security and compliance concerns have been addressed for the most part," says Computer Economics.
Finally, when it comes to IT staffing levels, less than half (46%) of survey respondents plan to increase their headcounts, while just over a third (35%) foresee no change and 19% plan a reduction. Despite this flat hiring landscape, Computer Economics notes an increasing demand for higher-level skills, for example in project management, data analysis and IT security.
Harvey Nash/KPMG CIO Survey 2019
Now in its 21st year, the Harvey Nash/KPMG CIO Survey is claimed to be the world's largest global IT leadership survey. It's certainly extensive: the 2019 edition gathered 3,645 responses from CIOs and technology leaders across 108 countries.
Key themes in the 2019 survey include: digital disruption; increasing investment in technology; the relentless pace of technology evolution; AI and automation; cyber security; the rise of 'business-managed' (a.k.a. 'shadow') IT; digital leaders with "a relentless focus on speed and agility"; and the evolution of the CIO's role.
Despite what the report describes as "a sense of nervousness in the world economy", a higher percentage of survey respondents report IT budget increases in 2019 than at any time since 2005:
Political and economic turmoil in Europe doesn't seem to have curbed CIOs' optimism in that region, with 54% reporting IT budget increases (up from 49% in 2018). The worldwide outlook remains buoyant, too, with 52% of respondents expecting a budget increase in 2020, the survey report says.
By sector, budget increases were most prevalent in leisure (68%), advertising/PR (63%) and financial services/investment management (63%); budget increases were least common in local/state government (43%) and power & utilities (44%). The percentage of organisations' revenue spent on IT varied between 4.8% (manufacturing/automotive, retail/consumer goods) and 22.5% (technology).
What are business leaders looking for from their IT departments? The Harvey Nash/KPMG survey has been asking a slew of questions on this subject since 2013. This year the same three priorities came to the fore as in 2018: 'Delivering consistent & stable IT performance to the business' (64%), 'Improving business processes' (63%) and 'Increasing operational efficiencies' (62%):
The second group of priorities in the above chart is an interesting mix of creative and defensive issues: 'Enhancing the customer experience' (57%); 'Improving cyber security' (56%); 'Saving costs' (54%); 'Developing innovative new products and services' (53%); 'Delivering business intelligence/analytics' (52%); and 'Improving efficiencies through automation' (52%). Note the rapid rise of cyber security in recent years, from 40% in 2017 to 56% in 2019.
Investment in cloud technology is widespread (77% of respondents adopting at small or large scale), with leading emerging technologies including robotic process automation (24%), on-demand marketplace platforms (24%), Internet of Things (23%) and artificial intelligence/machine learning (21%).
When it comes to expenditure controlled outside the IT department, commonly known as 'shadow IT', the fact that nearly two-thirds (64%) of Harvey Nash/KPMG's respondents either tolerate (53%) or sanction (11%) this has resulted in a new term: 'business-managed IT'. The survey found that 22% of companies manage more than half of their IT spend in this way, and that 43% of companies have no IT department involvement in these business-managed IT decisions.
This doesn't necessarily mean that IT departments are losing control of tech spending in organisations: "Technology leaders are increasingly collaborating with their business peers and, despite the budget sitting outside IT, they don't consider it an 'outside' project," the report suggests.
Disruption in the C-Suite: How the digital transformation imperative is changing CxO dynamics and technology strategy (FT Focus/Apptio)
The Financial Times and technology business management specialist Apptio recently surveyed 555 senior executives in 12 countries (Australia, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, the UK, and the US) and nine industry sectors. Respondents were equally divided among finance, IT and infrastructure/operations functions.
The focus of Disruption in the C-Suite is the changing economics of IT and the impetus behind digital transformation, and how these developments are affecting relationships in the C-suite -- particularly between CIOs and CFOs.
Among the key findings: two-thirds (68%) of respondents feel that digital transformation has increased collaboration across the C-suite in developing new products and services; and 80% agree that there is more trust between the IT function and the rest of the business.
But not all C-suite members are deeply aligned on technology strategy: in particular, the survey finds that only 30% of CFOs and CIOs see eye-to-eye on issues like new products and services, allocation of IT investment in new digital strategies, and accountability for technology investment decisions.
According to 71% of finance leaders, the IT function needs to develop greater influencing skills in order to deliver the change their business requires. Among other things, CIOs will need to communicate where IT adds a competitive edge, across a range of competing priorities for their time and resources:
The FT/Apptio report also highlights the importance of real-time data in giving IT leaders the power to assess their investments in new technology and make better decisions. Just over half (51%) of survey respondents feel that IT is taking a more proactive stance on data leadership across the business compared with other functions.
IT budgeting is challenging at the best of times, but for 2020 an extra helping of political and economic instability -- possibly even global recession -- will make things even harder for CIOs.
Gartner and IDC both currently forecast significant growth in worldwide IT spending for 2020, a pattern echoed in recent surveys. Cloud infrastructure and applications are widely deployed, while investment in on-premises IT is not a priority.
Top concerns for business leaders are consistent and stable IT performance, improved business processes and greater operational efficiency, with issues such as enhanced customer experience, better security and innovative new products and services also prominent.
Organisations seem to be learning to live with 'shadow IT', or 'business-managed IT', but CIOs still have plenty of challenges ahead in terms of shaping their role in the modern C-suite.