Gartner’s latest analysis of the IT market has forecast that worldwide IT spending will total $4.6tn in 2023, an increase of 5.1% from 2022. The analyst firm believes this rise is being driven by digital business initiatives in response to economic turmoil.
“Back in 2020, CIOs saved most companies by bringing in remote work, hybrid work, doing the security, getting digital ordering in place, creating a digital value chain they didn’t have before,” said John-David Lovelock, distinguished vice president analyst at Gartner. “Most companies couldn’t have survived without the technology.”
According to Lovelock, CIOs are now in a strong position in terms of their IT budgets for 2023. “I think their budgets are going to be pretty safe for the next year because businesses will be looking at IT to help them improve internal processes,” he said.
But his primary concern is whether CIOs are ready to take on this responsibility. “Now it’s much more than when the CIO came in with technology and did things better,” he said. “The CIO now needs to be in the driving seat for these projects.”
Rise in digital spend
A July 2022 Gartner survey of more than 200 CFOs found that 69% plan to increase their spend on digital technologies, while the 2023 Gartner CIO and technology executive survey found that CIOs are being tasked with accelerating time to value on digital investments.
Discussing the analyst firm’s latest IT spending forecast, Lovelock said: “Companies will use digital technology primarily to reshape their revenue stream, adding new products and services, changing the cashflow of existing products and services, as well as changing the value proposition of existing products and services.
“This trend has fed the shift from buying technology to building, composing and assembling technology to meet specific business drivers. This shift is foundational to the growth of cloud over on-premise for new IT spending.”
Datacentre spending shot up by 10% between 2021 and 2022 from $190m to $209m, although growth for 2023 is forecast to decline to 3.3%.
Software spending continues to grow at the fastest rate, increasing by 8% between 2021 and 2022 to $790m and is forecast to grow by 11% in 2023 to $880m.
Devices is the area of IT spending that Gartner expects to decline the most. While its figures show that $749m is being spent on devices in 2022, this represents an 8.4% decline from 2021. The forecast for 2023 shows a further decline in device spending of 0.6%.
Looking at on-premise datacentre spending, Lovelock said older server chips and more expensive server configurations shipped last year. Although the hypercalers dominate server purchases, Gartner’s data shows that enterprises bought 13% more servers. Although some organisations paid a bit more for less functionality in terms of server power, he said: “Some CIOs are still willing to pay a little bit more to get the bigger functionality.”
According to Gartner, the technologies that are being maintained versus those that are driving the business are evident by their projected growth rates in 2023. The analyst firm reported that while there is sufficient spending within datacentre markets to maintain existing on-premise datacentres, new spending continues to shift to the cloud.
What the figures show, according to Lovelock, is that for most enterprises, rather than cannibalising on-premise datacentres, the shift to the cloud is new, additional IT spending. “Enterprises are not giving up on their datacentres, they are not getting rid of their licensed software, they are not getting rid of their raised floor, they are not getting rid of their IT staff,” he said.
Cloud costs rise
Lovelock said that before the cloud, CIOs had far more flexibility in how they managed their IT budgets. “Pre-cloud, CIOs had a lot of autonomy within their IT budget,” he said. “There are now much less discretionary pieces of the budget.”
For instance, if a CIO wanted to swap out an existing on-premise general ledger application, it was possible for the organisation to cut the annual maintenance fee associated with that application in preparation for the migration to the new platform. But, as Lovelock pointed out, pay-per-use subscription models reduce this flexibility. “If you are on a cloud general ledger, the minute you stop paying that bill, you stop having a general ledger,” he said.
For Lovelock, rising costs are increasingly becoming a factor in the public cloud. He said: “For the first time, we have seen some pretty big increases in the prices of some cloud services. Their costs are going up. Their energy costs are going up and their server costs have gone up. Their staff costs are also going up, so they need to pass on at least some of this to clients.”
As business leaders battle to reduce costs, external and internal IT cost increases will need to be taken on board, said Lovelock. “Enterprise IT spending is recession-proof as CEOs and CFOs, rather than cutting IT budgets, are increasing spending on digital business initiatives,” he said. “Economic turbulence will change the context for technology investments, increasing spending in some areas and accelerating declines in others, but it is not projected to materially impact the overall level of enterprise technology spending.”
Following on from the role IT played in keeping businesses operational during the Covid-19 lockdowns, Lovelock believes CIOs are once again being called in to save the business. “Business leaders are no longer thinking about outside the four walls of their offices, they’re thinking about what is going on inside,” he said. “And they are asking CIOs to add projects to improve operational efficiency, business optimisation and scaling within departments across the organisation.”