Economics of technology budget: it’s okay to be bullish
The description of a technology budget gives adjustments to certain CDOs. The CSO and CISO want irreproachable security. Marketing gurus want analytics. And bosses demand smooth user experiences.
Never mind supply chain issues, COVID-19 issues or the situation in Ukraine. According to John-David Lovelock, vice president of research at analyst firm Gartner, “This year is proving to be one of the loudest years on record for CIOs.”
“Geopolitical disruptions, inflation, currency fluctuations and supply chain challenges are among the many factors vying for their time and attention,” Lovelock said. “Yet unlike what we saw in early 2020, CIOs are accelerating IT investments because they recognize the importance of flexibility and agility to respond to disruption.”
At first glance, this is a positive development. Flexibility and agility are essential, but CDOs responsible for the IT budget must take a proactive view of their technology strategy and demonstrate good stewardship of corporate resources.
Demonstrating consistent value for money in IT budgets is an art, not a science. And it’s always good practice to stay on top of spending trends in this industry.
Growing expected budgets
On April 6, research firm Gartner published a Press release which projects that global IT spending will reach $4.4 trillion in 2022, up 4% from 2021.
Gartner said inflation rates, geopolitical disruptions and talent shortages [are] should not slow down IT investments this year. “As a result, purchasing and investment preferences will be concentrated in areas such as analytics, cloud computing, seamless customer experiences, and security,” Gartner’s Lovelock said.
CDOs with IT budget responsibilities should take proactive views
The material follows a different curve, depending on the research firm. “The impacts of inflation on computer hardware (eg, mobile devices and PCs) over the past two years are finally dissipating and starting to trickle down to software and services,” Gartner said. “With the current shortage of IT talent resulting in more competitive salaries, technology service providers are raising their prices, helping to increase spending growth in these segments through 2022 and 2023.”
Software and services are expected to see adoption, according to the company: “Spending on software is expected to grow 9.8% to $674.9 billion in 2022, and IT services are expected to grow 6.8% to $674.9 billion. $1.3 trillion.
The ACPA situation
The Asia-Pacific region is experiencing perennial technology and business mini-typhoons, ranging from ongoing quarantine restrictions to currency fluctuations. Still, research firm IDC finds growth in technology spending by APAC companies, although consumer technology spending is down in the first half of this year.
“IDC projects that ICT spending in Asia/Pacific will grow by more than 3.8% in 2022 and is expected to reach $1.4 trillion by 2026 with a compound annual growth (CAGR) of 5.2% by the end of 2026,” IDC said in a statement. statement. Consumer technology spending in Asia/Pacific is affected, with growth slowing in 1H2022. “However, technology spending by enterprises, including service providers, remained strong.”
Supply chain constraints have reached low points across APAC
“ICT spending in the region has shifted from exuberant growth last year to strategic growth,” said Vinay Gupta, research director, IT Spending Guides, IDC Asia/Pacific. “Technology budgets are stable at the moment. However, leaders will pay more attention to technology investments because they represent a much larger share of expenses and also to allow them sustainable business growth.”
Defining the precise boundaries of the diversity of the Asia/Pacific region is never an easy task. The inter-ASEAN economies have their parameters, just like the major countries of Northeast Asia.
As IDC notes, many Asian economies “are net importers of energy and commodities and face the brunt of rising imported inflation due to a weaker local currency.” However, the research firm said “Indonesia and Australia, which export commodities such as coal, oil and gas, have benefited from the current situation.”
However, supply chain constraints have reached low points across the region, and China’s zero COVID-19 policy (with its sporadic lockdowns) has exacerbated the situation. “With China as the main trading partner, many countries in Asia/Pacific have been affected…[but] IDC assumes that the Chinese economy will stabilize and return to growth in 2023.”
“As economic uncertainties slowly settle into the [Asia-Pacific] region, government initiatives in each country continue to retaliate by complementing macroeconomic stabilization measures,” said Mario Allen Clement, associate research director, IT Spending Guides, IDC Asia/Pacific. “Companies can continue to focus on operational efficiency. However, new initiatives can be blocked.”
Among APAC market sectors, “education is expected to grow more slowly in 2023 as IT investments may stall due to sudden overspending in 2021, followed in 2022,” IDC said. “Wholesale is expected to see a stronger rebound as budgets focus on improving omnichannel selling, growing commerce ecosystems, expanding into global markets, inventory transparency and automation.”
Long term strategy
Looking forward and backward along the time continuum is an essential exercise for all CDOs. “The rise of short- and long-term enterprise application software, infrastructure software, and managed services demonstrates that the digital transformation trend is not a one- or two-year trend; it’s more systemic and long-term,” Gartner said. “For example, infrastructure as a service (IaaS) underpins all major consumer-facing online offerings and mobile apps, accounting for a significant portion of the nearly 10% growth in software spending in 2022. “
The research firm said it “expects digital business initiatives such as experiential end-consumer experience and supply chain optimization to drive spending on enterprise applications and software of infrastructure towards double-digit growth in 2023″. As for the events in Ukraine, they “should not have a direct impact on global IT spending. Price and wage inflation, compounded by talent shortages and other delivery uncertainties, are expected to have a bigger impact on CIOs’ plans in 2022, but still won’t slow down technology investments.
“CIOs plan to have the financial and organizational capacity to invest in key technologies throughout this year and next,” Lovelock said. “Some IT spending was on hold at the start of 2022 due to the Omicron variant and subsequent waves, but these are expected to disappear in the short term.”
“CIOs who keep an eye on key market signals, such as the switch from analog to digital and buying the IT to build it, as well as negotiating with their vendor partners to assume ongoing risks, will fare better in the long run. At this stage, only the most fragile companies will be forced to switch to a cost-cutting approach in 2022 and beyond.”
Stefan Hammond is editor of CDOTrends. Best practices, IoT, payment gateways, robotics and the ongoing fight against cyber hackers pique his interest. You can reach him at [email protected].
Image credit: iStockphoto/fizkes