September 24, 2018
SmarTek21 team members refer a lot of great white papers and articles to each other via Slack. We’ve recently been discussing a long whitepaper from TechRepublic entitled, ”Tech Budgets 2019: A CXO’s Guide.” We encourage you to read the whole thing, but here’s a shorter summary containing some of our main takeaways.
- IT spending is on the rise. Gartner’s latest forecast puts worldwide IT spending for 2019 increases 2.8 percent, reaching $3.85 trillion. IT spending as a percentage of revenue will increase from 2.3% to 2.7%. More than half of Gartner’s survey respondents said that their organization would dedicate more funding to IT.
- Priorities include security (63%), cloud services (48%), and internal employee training (44%).
- Spending is increasing because companies are looking at how new technologies can transform the enterprise and improve results. This encourages both IT and non IT departments to invest more in Digital Transformation.
- Thus, not all Digital Transformation activities start in IT. “Change agents” in other departments may get the budget to start a project that improves customer experience, and only have IT get involved later.
- Vendors and Consultants should benefit from the increased spending, but it comes with a cost. Businesses will expect a more rapid return on investments or recoups on the cost of ownership than in the past. Further, businesses will expect technology vendors to conduct successful proofs of concept before they buy.
- Manufacturing is an industry where Digital Transformation initiatives are on the rise. “Smart Factories,” robots, and increased AI are all opportunities to improve productivity.
Section 1: Where IT Budgets are Headed in 2019
- Current IT Spending: Gartner notes that Communications Services remains the biggest IT spending category in today’s IT budgets, but its growth has flattened out and is being replaced with spending in Enterprise Software. Meanwhile, 44% of Gartner’s survey respondents said employee training is a top IT priority. Gartner also says that businesses still invest heavily in key technology areas such as security, with 63% of respondents naming it a major corporate focus. However, growth in Devices (PCs, tablets and mobile phones) dropped to just 1.3 percent in 2018/19, and growth in spending on Data Center Systems is steadily declining, from 6.3 percent in 2016/17 to 1.1 percent in 2018/19.
- Budget forecasts: Gartner’s latest forecast puts worldwide IT spending for 2019 increases 2.8 percent, reaching $3.85 trillion. IT spending as a percentage of revenue will increase from 2.3% to 2.7%
- New areas of spending: The forecast lists a few categories where CxOs will be spending more, including enterprise application software, mobile devices, infrastructure software, and business IT services. Less money will be spent on (on-premises) data center systems and associated services.
- IT budgets are shifting to other departments: Although central IT continues to drive technology funding and adoption, Gartner says that end business areas outside of IT are gaining more control over IT decisions. In 2018, 48 percent of IT survey respondents said they were key influencers in technology purchase decisions but that number drops to 42 percent in 2019. More technology spending is being controlled by lines of business (LOB) rather than the IT department. This spending, also called ‘shadow IT’ could overtake IT department spending by 2019, according to analyst firm IDC. While LOB spending is now even with IT spending, LOB spending has been growing at a more rapid rate. This shift is supported by other industry findings that show an increase in ‘shadow IT’, where users make technology decisions and bring technology on board, often without IT’s knowledge. When this happens, central IT’s role in technology budget decision-making diminishes, and technology funding moves to business unit budgets. As organizations adjust to this new IT purchasing model, IT and end users will collaborate more on technology evaluations and buying decisions.
- But there’s still more money for the cloud: According to Computer Economics, “IT organizations are accelerating their rush to the cloud and are increasing spending in an effort to reap the benefits. Our composite sample shows broad, modest growth in operational budgets and even stronger increases in spending as a percentage of revenue, while IT capital budgets and hiring remain flat.”
Section 2: Trends in Digital Transformation
- Digital Transformation is hot: According to a report by Altimeter, Digital transformation efforts are underway to varying degrees at virtually every company they interviewed, usually being driven by the CIO or CTO.
- Initiatives don’t always start in IT: However, smaller projects are also being launched by individuals in all areas of the enterprise. These forward thinkers present a vision to management and are given budget to prove how the idea can help their company become more competitive. While these “change agents” outside of IT may get the initiative launched, either the CIOs or CMO will often end up with control once it is approved. CIOs generally take a technology-first approach, while CMOs view it from a customer experience path.
- Humans are still humans: Ironically, the biggest barriers in a Digital Transformation project are the humans the transformation may affect. Enabling an enterprise-wide change requires executives to put aside their fears and egos, and allow the change to happen. Consultants and vendors need to understand how each person in the organization will be affected, and manage these fears. Coming in with a brilliant technology strategy is not enough – you need to understand how the strategy will affect actual people, and how they can help or hinder the initiative.
Sections 3: IT Trends in Manufacturing
Sectors of strength: Industrial IoT is named as the largest market for commercial IoT deployments. TechRepublic continues, “The manufacturing sector is using IoT to streamline data gathering and analytics, and applying the learnings to improve asset performance management.”
- Budget Objectives: Companies are attempting to optimize manufacturing performance because “there are so many high-value use cases including optimizing manufacturing performance or yield, improving predictive maintenance, improving production execution, optimizing production capacity management, and reducing inventory, logistics and supply chain costs.
- Digital Transformation Goals in IoT: Analysts agree that the future will bring “smart factories” that can capture and mine all the manufacturing data to optimize the business and operational decisions. Investing in this Digital Transformation will lead to faster and better decision making
- Other Innovations in Manufacturing: New advancements in additive manufacturing and robots/cobots will also garner investment in 2019. Project timescales need to get shorter for companies to compete in a global economy. Having AI-driven technology solutions combined with IoT data can help manufacturers with this optimization.
We encourage you to read and digest the entire set of reports from TechRepublic. Or, contact a Digital Transformation leader here at SmarTek21, and let us talk you through some ways to accelerate your enterprise. The industry is changing rapidly and consistently. Let us know how we can help.