Economic uncertainty is leading many CIOs to replan and rethink their tech investments for the second half of 2022 and into 2023. At the recent Chief Information Officer (CIO) Technology Business Management Council Board of Directors Invitational which includes FinOps leaders, 58% of the surveyed executives were concerned about an upcoming recession impacting their business, and 44% of executives were unsure if their technology budgets would remain consistent through the end of the year. Attendees said they would delay hiring, optimize labor resources, rationalize vendor spend, delay non-strategic projects, and decrease external consulting costs. But on the other hand, they also said they will use this time to prioritize and accelerate key initiatives including digital and cloud that are revenue impacting.
In the 15 years since I co-founded Apptio, I’ve seen thousands of our customers execute these tactics with the help of our software — starting with our earliest customers navigating the Great Recession of 2008. Technology leaders still need to protect cash on hand while maintaining or accelerating investments in innovation that will keep the organization competitive. They will use this time to come out ahead of their competition by using technology as a strategic lever.
There are a few factors influencing analyst predictions on IT spending in 2022 and beyond. Here’s what CIOs should do to maintain their competitive advantage.
Current challenges aren’t shaking faith in digital transformation
Despite the current economic climate, analysts predict only a brief dip in IT spending growth. According to Gartner, the overall rate of IT spend growth will fall from 10% in 2021 to 2%-3% in 2022 — with an expectation of 6%-7% annual growth in 2024-2027. Though this is a cut in growth, it suggests that organizations aren’t fundamentally re-evaluating their commitment to digital transformation. Instead, they are looking to replan and rethink technology investments to allow them to meet their digital transformation commitments.
Many organizations are looking to improve their core economic efficiency by cutting Run costs and using those savings to reduce overall spend. But CIOs I speak to are redirecting savings in Run part of their operations to investing in digital transformation. They see that revenue growth from digital transformation outweighs the benefit of reducing overall spend. CIOs are levers for value creation for their enterprises vs. just managing the back-office
Yes, this is a challenging time. But it’s also an opportunity. Many business leaders are in a defensive posture and cutting investments — but now is the time to double down and invest in the right areas to outpace your competition. Of course, to do this, you need the data and analytics to shift resources to support those right areas — and then shift them again if the “right” areas turn out to be elsewhere. Our customers understand that Apptio is the financial decision engine that allows companies to reduce their Run costs, understand where to cut, where to maintain, and where to accelerate investments.
Weather the storm by proactively managing investments
Cuts in IT spend growth in 2022 show the impact of supply chain challenges and inflation. According to Gartner, there has been significant growth in data center systems spend in 2022 — 6.4% in 2021 to 11.1% in 2022. The fact that this is predicted to fall back to 4%-5% annual growth in 2023-2026 indicates that inflation, rather than a long-term commitment to data center expansions, is driving this spend. Persistently high data center hardware costs would provide another reason for shrinking — or erasing — your data-center footprint and adopting cloud solutions instead.
Consumers are delaying buying new, upgraded devices. There has been an 8% drop in shipped units across end-user devices including phones, traditional PCs, and printers. In the first year of the pandemic, the shift to work from home boosted demand for these totems of office life. However, inflation is making businesses put off refreshing or updating them. Like other IT spend growth areas falling in 2022, this looks to be a short-term issue. Gartner expects 3%-5% annual device spend growth in 2023-2026.
Software spend is avoiding inflationary pressure
Though there has been a dip in software spend growth in 2022 (9.6%) compared with 2021 (14.7%), software still ranks as the highest growth in IT spend outside data center systems. Of course, unlike hardware, software doesn’t have supply-chain issues, so the growth drop is more down to throttled demand rather than price spikes.
The current challenges of high inflation and backed-up supply chains are unevenly impacting IT growth. Organizations succeeding now are doing so because they have the financial and operational agility to respond to factors out of their control. And as those factors change again — hopefully in a positive direction — the agility that got them through these challenges will set them up for success in the future.
I encourage you to attend our 10th Annual CIO TBM Conference in Austin, Texas, November 7-10, or the virtual experience from November 15-16 to learn more strategies for navigating today’s economic climate. Whether you are driving cloud adoption, shifting from projects to products, or pushing digital innovation, you will benefit tremendously. The TBM Conference (TBMC) will show you how technology leaders evaluate their investments and portfolio to reallocate resources and defund underperforming digital initiatives — all to win the digital race. Register today.