Rain or Shine, IT Budgets Refuse Decline

July, 2023

The IT spending and staffing outlook for 2023 can best be described with the old British slogan, “keep calm and carry on.” For at least a year, North American and European companies have been expecting the recessionary shoe to drop as central banks raised interest rates to fight inflation. War in Ukraine and increasingly brittle supply chains have not helped. By now, we would have expected more companies to be cautiously preserving cash, preparing for a recession. And yet, for the most part, businesses are not cutting IT budgets.

As shown in Figure 1-1 from the free executive summary of our IT Spending and Staffing Benchmarks 2023/2024 study, IT budgets are increasing by 4.0% at the median. This is the second-highest increase we have seen during the cloud era, only behind last year. While skeptics might point to that increase merely matching inflation, prior to the era of digital transformation, an impending recession typically meant budget cuts, not increases.

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If the economy continues to defy expectations, IT can use those increases to continue its transformation. If the economy takes a downturn, enterprises are counting on IT to pick up the slack just as it did during the COVID-19 lockdowns. If IT is supposed to be the hero that saves companies from the next recession (or, at least softens the landing), what are CFOs looking toward to make that happen?

Some likely areas of investment include generative AI and automation, zero-cost transformation (using savings from digital and process transformation to invest in more transformation), new digital business plans, and even the metaverse. All of these concepts help companies reduce costs while improving service, help utilize the workforce, and deepen relationships with customers.

“Customer habits have changed, and they are looking for deep, low-friction relationships with their favorite brands,” said David Wagner, senior research director at Computer Economics, a service of Avasant Research, based in Los Angeles. “IT departments are enabling enterprises to make these relationships possible, and they are being given the budgets to invest in the right tools.”

To drive this point home, we are seeing increased investment in digital transformation, automation, analytics, and system/data integration—all prerequisites for everything mentioned above. And that brings us back to that slogan we mentioned at the beginning. It is time for IT departments to keep calm in the face of recession fears and carry on with digital transformation.

If the slogan of the year is “keep calm and carry on,” what is the long-term outlook for IT spending? Likely, it will continue to be strong whichever way the economy turns. Each year we ask CIOs to report whether their priority is to improve service or cut costs. Only 12% report that cutting costs is more important, and only 9% report it is much more important. Compare that to the 13% who report that service is much more important and the 28% who report that it is more important. It simply does not appear that cutting costs is a priority, except for companies in the most dire of straits.

Avasant’s Computer Economics IT Spending and Staffing Benchmarks 2023/2024 study is based on a detailed survey of more than 215 IT executives in the US and Canada on their IT spending and staffing plans for 2023/2024. The study provides IT spending and staffing benchmarks for small, midsize, and large organizations and for 35 sectors and subsectors. These include six new subsectors, namely life sciences, aerospace and defense, chemicals, healthcare payors, professional services, and technical services. 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 2023/2024. The full 40-chapter report is available at no charge for Avasant Research clients. Individual chapters may be purchased by non-clients directly from our website (click for pricing).