Coronavirus Putting 2020 IT Budget Plans in State of Flux

July, 2020

At the beginning of 2020, companies in the U.S. and Canada were poised for another year of strong IT operational budget growth. For the fourth year in a row, IT operational budgets were set to increase at a rate higher than inflation. The outlook for the year was looking strong for IT organizations—at least until the global pandemic struck.

As shown in Figure 1-3 from our annual study’s free executive summary, large organizations were poised to increase their operational budgets at a rate of 3.3%, and midsize and small companies were just slightly behind at 3.0%. But does that forecast still hold water in light of the coronavirus pandemic that took hold beginning in March, 2020?

1 ISS fig 1 3 - Coronavirus Putting 2020 IT Budget Plans in State of Flux

The short answer is this–while the outlook for budget growth has definitely changed, our benchmarking metrics are more important than ever as companies try to navigate the chaos. Despite current pandemic and economic conditions, it is important to note that our key benchmarks for overall IT spending and staffing levels remain valid because they are based on ratios, not absolute spending levels. Take, for example, IT spending as a percentage of revenue. If corporate revenues are declining due to current economic conditions, then the benchmark amount of IT spending will decline as well. Similarly, high-level guidance for IT staffing based on the number of corporate users will self-adjust if the number of corporate employees is reduced.

While our benchmarks expressed as ratios are self-adjusting, our reporting of 2020 IT spending trends, such as year-over-year changes to IT budgets, will be significantly affected by the pandemic. To understand the impact of the coronavirus on IT spending trends for 2020, please refer to reports referenced on our coronavirus research page.

“Because of the pandemic coming right in the middle of our survey period, we had to conduct supplemental research to determine the impact of the pandemic,” said David Wagner, senior research director at Computer Economics, a service of Avasant Research, based in Los Angeles. “Surprisingly, most companies are continuing with their budgets as planned for now. Currently, less than a third of organizations are reducing IT budgets, and those cuts are relatively small. We’ll be conducting follow-on surveys in the coming months to see if this continues to hold true.”

Prior to the pandemic, we would have predicted that companies would have continued increases in IT operational spending in order to accelerate the pace of increased cost efficiency and to access new capabilities they are missing in their legacy systems. We believe companies in the position to do so will, in fact, increase their IT operational budgets. At the very least, companies will look to maintain as many new projects as possible. Unlike past recessions where cuts were required to save costs, the cloud in many cases gives companies a unique opportunity to decrease costs while maintaining capabilities. For years, the cloud transformation has driven decreased costs in data center spending and personnel while driving a digital revolution.

Some companies are already dialing back new IT projects. But our supplemental survey on the effects of the pandemic indicates that companies are now accelerating projects for unified communications, remote work capabilities, business intelligence, and analytics in order to weather the storm. It is unlikely that even a deep global recession would stop the cloud migration; it may simply change its focus.

The Computer Economics IT Spending and Staffing Benchmarks 2020/2021 study is based on a detailed survey of more than 233 IT executives in the U.S. and Canada on their IT spending and staffing plans for 2020/2021. It provides IT spending and staffing benchmarks for small, midsize, and large organizations and for 28 sectors and subsectors. A description of the study’s metrics, design, demographics, and methodology can be found in the free executive summary.

This Research Byte is a brief overview of the findings in our report, IT Spending and Staffing Benchmarks 2020/2021. The full 31-chapter report is available at no charge for Computer Economics clients. Individual chapters may be purchased by non-clients directly from our website (click for pricing).