CIOs now focused on mission-critical tech, not growth or transformation
- Global IT spending to decrease by 8 percent due to COVID-19
- CIOs are placing their bets on mission-critical tech
- Spend on public cloud services is expected to rise by 19 percent due to the influx of remote working
With lockdown restrictions beginning to relax, reawakening the economy is a move that will proceed to bring employment rates up and businesses to rejuvenate.
Although signs of business activities kick starting are evident, IT budget cuts remain pervasive among CIOs to conserve cash and ensure business continuity elsewhere.
The latest forecast by research firm Gartner showed global tech spending would drop by 8 percent, from US$3.76 trillion in 2019 to US$3.46 trillion this year. The decline in spending is likely driven by a collective shift towards prioritizing ‘mission-critical’ tech and services over projects aimed at growth or transformation.
One of the clear examples is US confectionary maker Hershey’s approach to advance finance and data workstream efforts while placing some parts of their new ERP (enterprise resource planning) system on hold.
The move will stall the company’s overall implementation of the ERP system by a year or so. Hershey’s SVP and CFO Steve Voskuil shared that the company’s capital spending for the year will stay between US$400 million to US$450 million, as compared to the estimation of US$500 million in January.
This is an example of the shift in the mindset of C-suite members in selecting mission-critical projects and investments versus projects that promise advancement or expansion of a business. In short, business leaders are focused on tech that is able to remediate pandemic-induced challenges faced today, such as teleworking.
Businesses took a massive hit when lockdowns were imposed state and nationwide. While cafes and shops were shut, food delivery services and online shopping surged and providing an alternative gateway for businesses to reach consumers. As for enterprises, a mass migration to work at home was initiated.
On this note, IT systems and devices which support remote working were found to be faring well as compared to other IT segments, which experienced a drop in budget.
Gartner shared that sub-segments such as public cloud services, was expected to grow by 19 percent in 2020.
The significant role of cloud-based solutions in helping companies bolster their remote workforce will experience a hike. Cloud-powered communications such as telephony and messaging were predicted to attract high levels of spending of 8.9 percent. The same is expected for cloud-based conferencing, with a 24.3 percent growth in spending to take place.
Besides that, automation is another trend driven by the restrictions imposed by the pandemic. As high levels of reliance on human intervention in business processes sparked awareness on the advantages of automation, software that automates processes are expected to experience an uptick.
In a survey conducted by PWC, 48 percent of finance leaders expect to accelerate automation and new ways of working when the transition to work on-site begins. One of the key reasons driving the implementation of automation is to improve speed and accuracy in decision making, especially in the supply chain.
Taking into account CIOs favoring mission-critical tech and projects during these times, it is reasonable to predict that IT budgets will recover at a slower pace.
John-David Lovelock, a distinguished research vice president at Gartner, said, “IT spending recovery will be slow through 2020, with the hardest hit industries, such as entertainment, air transport, and heavy industry, taking over three years to come back to 2019 IT spending levels.
“Recovery requires a change in mindset for most organizations. There is no bouncing back. There needs to be a reset focused on moving forward.”