IT Leaders on Edge as Budgets Continue Only Modest Gains

January, 2020

Here at the end of 2019, we find that IT leaders worldwide have a positive outlook for the global economy. Nevertheless, that outlook is tinged with frustration compared to previous years. It is not exactly that leaders fear a recession (though an increasing number do) so much as they are becoming fed up with years of modest increases and not-so-modestly increasing demands for service. The best way to describe it might be a tea kettle building up steam right before it begins to whistle.

Figure 7 from the full study, Worldwide IT Spending and Staffing Outlook for 2020, shows the expected median IT operational budget growth for the worldwide sample by company size. No size company is expecting more than 3.0% budget increases at the median, and large companies are expecting no increase at all. Small and midsize companies both expect the same increases at the median. A similar story can be seen if you look at the worldwide sample with only the EMEA region expecting slightly larger increases in budget.

Fig1WorldwideITSpendingandStaffingOutlookfor2020 1030x687 - IT Leaders on Edge as Budgets Continue Only Modest Gains

This story of modest budget increases has been told for about a decade now, and managers are starting to get a bit frustrated. Our survey inspired a litany of similar complaints:

One manager may have summed up 2020 best when he commented in our survey, “[Our outlook] would be good if senior management would allow us to increase our budget in line with the increase in revenue.”

Or, as a director at a government IT department said, “As a government we are already spending less than required to effectively improve services. Reducing budgets and headcounts will only exacerbate the issue causing us to fall farther behind other jurisdictions. IT needs to be considered an investment not an expense.”

Or, as the manager at a professional services firm said, “The budget is inadequate. Attention to risks and opportunities at C-suite level is also inadequate.”

Of course, there is always the bright side which comes from this witty Englishman and director of IT: “We are actually doing more for less. It sharpens the mind no end.”

Prior to advances in IT automation and the cloud, if an IT organization wanted to increase compute capacity, it needed to hire more people and invest in more hardware. However, as companies invest in software as a service (SaaS), public cloud infrastructure, automation, and new best practices, they are able to add capacity without adding staff or hardware. Given that these two areas represent more than half of the IT budget, this can be a source of efficiency.

“For years now, managers have been expected to make room in their own budgets through the cloud transformation,” said David Wagner, vice president of research for the Irvine, Calif.-based research firm Computer Economics. “But much of those easier cloud projects are now complete, and finding budget for new projects is getting harder. IT leaders know how they can transform their departments, but they are not getting much help from the business in terms of budget increases.”

Still, there is some loosening of the belt. A look at where organizations plan to spend their new dollars provides more insight into current trends. A net 70.9% of IT organizations plan to increase spending on security, while in our worldwide sample, only a net of negative 7.0% of companies plan increases in data center spending. In other words, more companies are planning to decrease spending on the data center.

Meanwhile, in the U.S. and Canada, the story is similar. A net of 9.2% plan to decrease data center spending. This is the third year running that U.S. and Canadian companies plan to decrease such spending, a sure sign of transition to technologies such as SaaS and public cloud infrastructure that shift the infrastructure burden away from the in-house data center.

Overall, the outlook for 2020 is optimistic, but not enthusiastic, when it comes to spending. And, as noted, there are some hints that IT managers are becoming frustrated with having to hold the line on new spending. However, in terms of the economic cycle, this is far preferable to “irrational exuberance” and larger budget increases that lead to the need for severe cutbacks down the road.

In our annual outlook study, we provide guidance for IT executives as they firm up their plans for 2020. This year, our Worldwide IT Spending and Staffing Outlook, assesses IT operational and capital spending plans for 2020, priorities for IT spending and investment, and plans for hiring, outsourcing, and pay raises for IT organizations worldwide and in the U.S. and Canada.

This Research Byte is a brief overview of our study, Worldwide IT Spending and Staffing Outlook 2020. The full report is available at no charge for Avasant Research susbcribers or may be purchased directly from our website (click for pricing).