IT Budget Priorities Shift to Digital Transformation

May 2, 2016 Vawn Himmelsbach

Tech spending declining in big business.​

Digital Transformation ICT

Consider how self-driving cars could change the transportation sector, or how the rise of blockchain could flip the financial industry on its head. The Internet of Things, machine learning and artificial intelligence — to name a few — will impact virtually every industry sector, from insurance to healthcare to manufacturing.

Within five years the IoT will be so ubiquitous, it will be as invisible as Wi-Fi today, predicts Steve Proctor, communications director at the Information Technology Association of Canada (ITAC), in a recent blog post. “Every industry will have rolled out an IoT strategy, big data will be fundamental to [the] success of even the smallest operations, and an explosion in robotics will reshape the manufacturing sector,” he writes.

So why is tech spending on the decline?

Research firm Gartner predicts worldwide IT spending this year to reach US$3.49 trillion — but that’s a 0.5 per cent decline from 2015. This decline is partly due to currency fluctuations, but it’s also indicative of a shift we’re seeing in how IT departments are spending money and assigning people to resources.

Digital transformation, or DX, refers to the application of third-platform technologies, such as mobile, big data, social business, the IoT and cloud, which will fundamentally change the way we do business.

And according to Gartner’s research vice-president John-David Lovelock, the need to invest in IT to support digital business is more urgent than ever. “Business leaders know that they need to become digital businesses or face irrelevance in a digital world,” says Lovelock.

That’s in line with what we’re seeing in Canada, too. Though the numbers aren’t as dire, and in fact, Canada may not have a decline at all.

BMI’s Canada Information Technology Report predicts IT spending in this country will grow by three per cent in 2016 to reach a total market value of $63.73 billion — much of that growth will be driven by software and services, such as cloud, rather than investments in infrastructure.

Instead of optimizing legacy systems, IT departments are choosing to redirect those funds toward digital transformation. Indeed, Gartner’s Lovelock says less than 10 per cent of organizations are actually in cost-cutting mode. However, they still need to spend on digital business initiatives, even if they don’t have “runaway IT budgets.”

So while we’re seeing less spending on infrastructure — such as servers and PCs — it doesn’t mean businesses have suddenly stopped investing in IT.

It’s a challenging time economically; there’s an expectation to do more with less. That’s why IT departments are moving away from spending on assets, such as infrastructure, to spending on services, such as infrastructure-as-a-service (IaaS).

CEOs aren’t resting on their laurels; they recognize their industries will be substantially transformed by digital technologies. In Gartner’s 2016 CEO Survey: The Year of Digital Tenacity, business leaders from around the world say they’re sanctioning strategic investments, particularly when it comes to digital business transformation — regardless of challenging business conditions.

IT budgets are shifting — not disappearing.

The market for cloud services, for example, continues to demonstrate high rates of growth, reflecting a shift away from legacy IT services, according to Gartner.

IaaS is growing strong, as enterprises move away from data centre build-outs, and SaaS continues to grow as organizations shift from on-premises licensed software models to cloud-based offerings. These service-based models don’t require an upfront investment in infrastructure; instead, they’re paid on a monthly subscription basis.

Research firm IDC predicts 60 per cent of new apps will be ‘mobile first’ by 2018, and worldwide spending on DX technologies will grow to more than US$2.1 trillion in 2019.

No doubt DX is a disruption, but it’s also an opportunity. Companies like Blockbuster didn’t keep up with the times and couldn’t survive. Now we’re seeing even more digital disruptors — ones that require a new way of thinking about business and the technologies that power them.

IT departments need to rethink how their dollars are spent and how to get the most bang for their buck. After all, it could be the key to their success — and to their very survival.

Learn more about digital disruptions and the impact on your business in 3 Sure-Fire Ways to Ignite Your Digital Strategy.

About the Author

Vawn Himmelsbach

Vawn Himmelsbach is a freelance writer and editor based in Toronto. She has covered technology and travel for 15 years, for media outlets such as CBCNews.ca, The Globe & Mail, Metro News, ITBusiness, PCworld Canada and Computerworld Canada. She also spent three years living abroad and working as an Asian correspondent.

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