Published: June 11, 2020
Our look at IT spending plans for 2020 in Voice of the Enterprise: Digital Pulse, Budgets & Outlook, 2020 shows that organizations’ IT priorities, consumption models, buying preferences and technology adoption patterns continue to evolve in the data-driven digital transformation era. Given that we conducted this survey toward the end of 2019, the results do not incorporate a COVID-19 perspective on IT spending. However, we believe that certain trends are likely to persist despite (or even because of) the current situation, including the persistence of centralized IT spending, increased spending on information security and cloud/hosted IT services, and capex/opex preferences.
The 451 Take
The COVID-19 outbreak and the resulting business disruption have had the effect of validating (and in some cases accelerating) previously identified IT trends. Centralized IT spending will remain the norm, but decentralization (or rather, localized) IT expenditure will continue, albeit with greater degrees of centralized oversight. Cloud and information security will remain top sectors for increased IT spending, but in an interesting twist, these areas directly are becoming just as important for 'keeping the lights on' as they are for broader business growth and transformation. Given changing business conditions and economic uncertainty, the need for agility and flexibility are tipping the IT procurement model further toward opex. To the extent that necessity is the mother of invention, we expect to see an acceleration of prevailing trends toward more adaptive IT approaches throughout the presumably prolonged COVID-19 era.
Direction for IT Spending: Still Up Overall (for now)
While certain categories of IT spending will be downgraded to nonessential during the COVID-19 pandemic and subsequent economic upheaval, IT spending in aggregate is likely to increase or remain stable for a majority of organizations on a year-over-year basis.
In the VotE Digital Pulse budgets survey, 47% of organizations reported plans to increase overall IT spending in 2020, with 42% predicting unchanged budgets, and 11% anticipating decreased budgets. However, a deeper dive into the data may provide insight into post-COVID-19 spending patterns. The organizations most likely to anticipate increased IT budgets for 2020 are also those whose IT spending is geared more toward growth/transformation initiatives; those more likely to keep budgets the same or plan to decrease spending are those that devote the bulk of their IT budgets (more than 50%) to maintaining and operating existing IT systems (see Figure 1).
However, the COVID-19 pandemic has upended the best-laid plans of business and IT leaders, with significant impact on both standard and strategic business operations (e.g., travel bans, expanded work-from-home policies, hiring freezes, delayed product/service rollouts). However, 451 Research’s Coronavirus Flash Survey
(conducted March 10-19) indicates that plans for increased IT spending have not been completely derailed, with 34% of organizations planning to spend more on IT resources/assets as a result of the coronavirus outbreak (with 63% reporting unchanged IT spending plans).
Yet the coronavirus situation has altered the composition of 2020 IT spending, reorienting both growth/transformation and maintenance/operations spending toward accommodating the pandemic-induced 'new normal' (see Figure 2). Longer term, as a more permanent 'new normal' unfolds, we would expect all organizations to leverage these new technology investments to support strategic growth and transformation activities that may have been brought forward due to the current situation. Examples include broader and deeper deployment of employee communication/collaboration technologies to support new types of customer/employee engagement and interaction; expanded use of mobile devices/services for field operations and localized service delivery; and accelerated cloud infrastructure implementation to improve the flexibility of current IT environments and enhance the productivity of dispersed work groups.
Power of the Purse: COVID-19 Impact on IT Centralization Trends
Organizations reported on average that 65% of IT spending goes through the IT department, with the other 35% wending its way through other parts of the organization, such as the functional business units and/or application developers – or more generally, through shadow IT.
Looking ahead over the next 2-3 years, one-third of organizations anticipated a shift in IT spending toward the decentralized model, while 58% posited that spending would remain completely or substantially centralized with the IT department. However, the COVID-19 situation may not change things as much as one might think. Nearly 40% of organizations in our March 2020 COVID-19 survey expected expanded/universal work-from-home to become a permanent fixture of corporate life, which may usher in a more centralized command-and-control approach to WFH IT as a way to standardize security and governance processes. At the same time, ramped-up interest in and implementation of cloud IT and applications may, at minimum, keep IT centralization steady as organizations embrace cloud in the short term to ensure continued operations and leverage it longer term to evolve and face the inevitable IT modernization/digital transformation reckoning.
Capex vs Opex: New Paradigm or same as it ever Was?
Our latest VotE Budgets & Outlook survey showed that a slim plurality of organizations (38%) expressed equal preference for opex and capex IT purchasing models, while 37% voiced a preference for the opex model, leaving 25% preferring the capex model. Our VotE surveys have revealed a shift away from capex-heavy IT spending, influenced in large part by increasing cloud adoption and broader cloud implementation.
At the same time, hardware vendors such as HPE, Dell and Oracle are making it easier for customers to combine opex models with on-premises IT implementation by putting equipment on customer premises and charging based on consumption for the services running on top of it. We believe that the COVID-19 crisis, the associated business disruption and transformation, and continued economic uncertainty will likely accelerate flight from company-owned and operated datacenters and pullback of large-scale capex for IT refresh and modernization.