Information technology budgets are being retooled as enterprises are starting to plot their post-pandemic recoveries and it is likely that projects will be viewed through a new lens that revolves on savings, agility and resilience over growth and experiences.
COVID-19 has accelerated trends like remote work and digital transformation, and forced IT leaders to adapt their budgets accordingly. Our Tech Budgets 2021 special feature examines how business leaders are spending their tech dollars.Read now
The COVID-19 pandemic has led to job losses, business closures, a sharp decline in discretionary spending and more debt--lots of it. Enterprises have been busy tapping credit lines to shore up balance sheets.
This reality means that IT budgets are going to be squeezed and vendors like IBM and SAP are seeing deals postponed. IDC is projecting IT spending declines across multiple industries, but predicting a bottom is a work in progress.
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And a recent PwC CFO survey found more than half of financial leads see tech spending as something that'll come under more scrutiny. Other areas targeted for cuts are facilities and general capital expenditures followed by workforce and operations.
In other words, your tech projects better cut costs in a few areas such as commercial real estate, capital expenses, labor and processes. Not every industry will handle their IT budgets the same way. For instance, Ray Wang, principal of Constellation Research, sees the IT spending by industry breaking down like this.
Contrast those IT spending declines with the way business was conducted pre-COVID 19. Previously, IT spending had the following characteristics:
The only one of those three that will stick is the last characteristic. The companies most digital in their approach to distribution, work and productivity fared well. Some digital transformation projects weren't even yielding results until COVID-19.
Now the IT spending race will revolve around being more digital as a way to cut costs and grow over time (like when there's a vaccine for COVID-19).
As previously noted, it will be hard to justify commercial real estate costs under any post-pandemic recovery plan. Companies have proven en masse that they can have employees work from home without much disruption. The upshot is you'll need fewer offices to support. Business continuity spending will do well and things like open office floorplans and feel-good perks for employees likely to be re-evaluated under social distancing guidelines. Investments in things like data centers, offices and travel are going to be heavily scrutinized if not nixed completely.
Forrester noted in a research report:
Businesses have been forced into an unprecedented experiment with remote working and bans on business travel. One IT leader told us: "In our culture, the prevailing wisdom was that you could never provide the service we do without being in the office. Having to deliver it remotely has shattered that belief." Firms will never return to the pre-pandemic normal; employees will insist on home working and mobile flexibility and question the necessity of air travel and in-person meetings. Business execs who experienced firsthand the shortcomings of legacy technology environments will demand that IT accelerate roadmaps for app and infrastructure modernization, a high-performance network, high-availability architectures, automation for speed and reliability, and cloud for scale and flexibility.
Wang said the IT playbook going forward will revolve around business continuity, resiliency, cloud, analytics to plan for multiple business scenarios, remote work, security and automation tools such as artificial intelligence.
If you play this IT spending environment out over a few years, it's likely that enterprises will be more efficient than ever and have more diversity in terms of sales channels, supply chains and work methods. All of those items should yield better profit margins over time. For now, many enterprises are just trying to survive and develop their post pandemic IT strategies. In a few short weeks, the 2020 IT playbook was scrapped. The new one is being formed as we speak.