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When a slowdown in IT budgets is a good thing

IT budgets will grow at their slowest rate for four years in 2016, yet companies are spending more on digital technology

2016 is looking to be an interesting year for IT budgets. The headline number isn’t encouraging – CEB’s annual global IT budget benchmark shows that budgets are only expected to grow by 2.2% in 2016, the slowest projected growth since 2012. But this slowdown in IT budget growth masks a deeper shift in spending on technology inside companies. Ironically, the companies reporting the slowest increase in budgets may actually be those doing the most to embrace digitisation and make their companies more innovative.

This paradox is explained by the fact that as company leadership teams become more digitally savvy and seize on the latest technologies to drive growth, the IT budget – the money overseen centrally by the CIO – accounts for a diminishing share of total technology spending.

CIOs as technology brokers

Previously, investment in technology sat firmly in IT budgets and investment decisions were guided by CIOs and their teams on behalf of the enterprise. However, business leaders now are funding more technology-enabled business capabilities directly from their own budgets, and look to IT to advise, broker or coach not to own delivery.

The numbers make this trend clear. For every pound spent in the IT budget in 2015, another 50 pence was being spent on technology elsewhere in the business. In previous years it was only 43 pence, and we expect this figure to keep growing in coming years.

Healthy signs for IT

This is why shrinking IT budgets do not necessarily represent negative enterprise technology spending, but rather a healthy sign of IT’s ability to support technology decision-making in the rest of the business. There is certainly no sign that these companies are skimping on some of the most promising new technology capabilities. In fact, where this business-led spending trend is well advanced, we see 30% more money going towards analytics, usability, personalisation and collaboration.

Another spending category that isn’t being short-changed – and remains firmly under the purview of the CIO – is cyber security. Following high-profile data hacks in 2015, security budgets are expected to increase from 5.2% of total IT spending to 6.2%.

Other key findings from the survey include:

  • Reducing customer effort is key: In 2015, 11% of the IT project budget was invested in improving usability. Looking to 2016, the role of user-experience designer will be installed into at least 50% of companies.
  • More money for big data: Organisations allocated more budget to business intelligence in 2015 than in previous years and data scientists are expected to be present in the majority of companies by the end of 2016.
  • Declining spending on core infrastructure and process automation: Spending on core infrastructure such as data centres and network declined 3% between 2013 and 2015 to 30%. Similarly, spending on enterprise process automation, such as enterprise resource planning, fell from 32% of project budgets in 2013 to 30% in 2015.
  • Flexible budgets have become normal: 81% of companies had flexible budgets in 2015; in other words, money allocated for one purpose at the start of the year is reallocated to higher priority areas during the year. This trend is expected to continue as greater support is needed to respond to rapidly changing business needs.
  • Deepening cloud investment: Almost all CIOs are allocating some budget to the cloud. The depth of deployment has also increased as almost half of companies allocate at least 6% of total IT spending to cloud systems.
  •  Diversification of sourcing: In 2015, nearly one-fifth of technology suppliers used by companies were new-to-world suppliers and 40% supported specific business niches, rather than provide broad ecosystems of systems.

Overall, IT is moving in a different direction and signals a positive change for companies. The old distinctions between “IT” and “the business” are no longer being applied in one of the places it matters most – the budget. This means companies can devote greater resources to digitisation and better positioned to make the most of the opportunities for growth and competitive advantage that digitisation creates.

Andrew Horne is IT practice leader at best practice insight and technology company CEB, a membership group which identifies the best business systems to challenging functional and IT management problems facing CIOs.

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