Forecast 2015: IT spending on an upswing

Not Making the Cut

While spending will increase in some areas, it will inevitably decline in others. Hardware was the area most commonly cited as a target of cuts in the Computerworld Forecast survey, with 24% of the respondents saying that their employers will decrease spending on servers, desktops, laptops and other types of equipment. And with more companies thinking about outsourcing IT operations or moving systems to the cloud, 19% of those polled said legacy systems modernization or replacement will be put on the back burner and 16% said that they will spend less on data center consolidation and optimization.

“We’re making concerted efforts to spend less money on on-premises infrastructure and . . . data centers,” says Georgetown’s Davis. “We want to leverage cloud solutions or technologies in order to find ways to be more efficient and effective.”

But hardware spending isn’t going away anytime soon for the majority of companies. “Moving everything to the cloud is not going to happen overnight,” says Minton, who estimates that 70% to 80% of IT budgets usually go toward maintenance and upkeep.

“We think it’s going to take as long as a decade for the whole journey to the cloud to pan out,” he explains. In fact, IDC predicts that spending on physical hardware will rise slightly in the first half of next year before slowing down again, because the tight budgets of recent years left many companies overdue for upgrades to their on-premises servers and storage systems.

IDC expects spending on PCs and desktops to follow the same trajectory. “We’re definitely going into a little bit of a resurgence in PC shipments that will be a temporary thing and then die off by this time next year,” Minton says.

Investments in on-premises software will also cool off: 15% of the Forecast survey respondents said they expected cuts in spending on ERP and CRM systems, individual point applications, Web services and service-oriented architecture, open-source tools, operating systems, e-business software and content management tools.

Computerworld

There was a tie for fifth place on the list of the areas most commonly earmarked for cuts next year: 14% of the respondents said their organizations would dial back spending on unified communications technologies, such as email, instant messaging, telephony and videoconferencing, and another 14% said they foresee a decline in expenditures on storage, including network-attached storage and storage-area networks.

Cost Containment Still a Top Priority

Even though many of them will have more money to spend next year, 53% of the IT professionals surveyed said that containing costs is among their top priorities. Next on the list of priorities were automating business proc­esses (cited by 47% of the respondents) and optimizing existing investments (cited by 44%).

For example, the police department in Charlotte, N.C., is looking to purchase body cameras for more than 1,000 officers — a big issue for police departments across the country. But body cameras require a huge investment in storage, networks, hardware and maintenance, says Jeff Stovall, CIO of the Charlotte city government.

“That level of change in investment is not going to come without a sacrifice somewhere else,” says Stovall. “That’s where prioritization comes in: What’s really important to the city versus what’s really important to the individual department?”

Charlotte increased IT spending by 13% for the fiscal year ending June 30, 2015, but after that, the budget will probably remain flat, Stovall explains. His primary goal for the second half of 2015 will be to drive transparency into how each city department is spending on its own IT projects, and how that spending aligns with the city’s priorities. “Transparency forces prioritization discussions at the level of the city manager,” Stovall says. “That is different from the stovepiped prioritization discussions of the past.”

The key is open communication, says Jason Hayman, market research manager at TEKsystems, a Hanover, Md.-based IT services, staffing and talent management company that analyzes IT spending.

The whole C-suite needs to communicate the priorities of the organization and then decide what tools are going to be used to meet those goals. Once an application is chosen, everyone must agree on who’s in charge and how the technology will be supported, he adds. Business units have been known to go rogue and purchase their own systems, Hayman says. And then, “all of a sudden they’re calling IT saying, ‘This system needs to plug in with other applications,’” he notes. “It causes back-office issues or technical issues, and the CIO didn’t even know this was going on, or budget for it.”

Computerworld

It boils down to making sure there’s transparency and communication within the business units. Executives from all areas of the organization need to be on board and say, “Here is what we’re going to do, here are the objectives and the applications we’re going to invest in,” Hayman says. “[Then] the CIOs can make their best judgments.”

As Snyderwine gets set to present his hefty IT budget proposal to the Hargrove executive team, he acknowledges a dose of reality. While he’d like an increase of 20%, he says, “I think I’ll probably come in at around 10%.” But that won’t dull his optimism. “I’m not presenting gadgets; I’m presenting use cases of what technology does for the customer — and they’re looking at the sales numbers,” he says. With the right pitch, technology and sales should be able to move forward together, he says. “As we say in the trade show business: The show must go on.”

And while IT leaders are finding ways to squeeze out extra budget dollars for their own innovation strategies, there’s often even more innovation spending going on outside the department’s purview — a growing trend in large organizations. Today, 30% of IT spending happens outside the IT organization in large enterprises, and that figure could grow to 50% over the next few years, says Gartner's Gordon. In many cases, business units are bypassing IT and buying technology themselves to deliver products and services more quickly. The implications for IT departments include a loss of control over enterprise technology and perhaps a decrease in the amount of money allocated directly to IT for innovation.

Gartner sees the rise in what some observers call shadow IT as part of a shift toward what it has dubbed “bimodal IT” — a moniker that conveys the idea that organizations need two speeds of IT: traditional and agile. Traditional IT is focused on strong efficiency and safety, approval-based governance and price for performance. Agile IT, on the other hand, is focused on supporting prototyping and iterative development, rapid delivery, continuous and process-based governance, and value to the business.

Gartner finds that organizations are most successful when they have two modes of IT — with different people, processes and tools supporting each. “Often, that duality requires spreading out IT projects throughout the business,” Gordon says.