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Covid-19’s Impact On The Future Of IT Budgets

This article is more than 3 years old.

  • Gartner predicts IT spending will decline by 8% this year dropping from $3.7T in 2019 to $3.4T this year.  
  • Worldwide spending on IT infrastructure, including public and private cloud increased 2.2% in Q1, 2020 while spending traditional non-cloud infrastructure plunged 16.3% year-over-year according to IDC.
  • 54% of CFOs plan to make remote work a permanent option according to a recent PwC U.S. CFO Pulse Survey and are investing in technologies to enable that today.

Despite IT spending's downturn, spending on remote working apps and platforms is projected to reach double-digit growth rates this year. Gartner's latest forecasts reflect how IT spending for remote working is a growth catalyst for public cloud services, predicted to grow 19% this year. Cloud-based telephony and messaging and cloud-based conferencing are also predicted to grow 8.9% and 24.3% respectively.

Interested in seeing how the pandemic is impacting sector-level IT budgets based on reading a recent research note from Computer Economics, a service of Avasant Research, I contacted Frank Scavo. Frank is the president of Computer Economics, which recently published The Impact of Covid-19 on IT Budgets in 2020. The study provides a detailed breakout of how Covid-19 is impacting the future of IT budgets. Please see page 21 for a description of the methodology. Thank you, Frank for providing access to the study. The following are key insights gained from the research note and report:

  • IT budgets across ten industry sectors are predicted to see a 5% to 11% reduction this year. Industries the hardest hit by the pandemic are predicted to see the greatest losses to their IT budgets in 2020. These include retailers who will see up to a 15% drop in IT budgets this year. Energy/Utilities (-5%), Public Sector (-6%) and Manufacturing (-7%) are expected to see the least. The following table provides insights into the ten sectors' IT operational budget reductions in 2020.

  • 79% of IT organizations have not had a layoff since the start of the pandemic. The severe labor shortage IT organizations grappled with last year is fresh in the minds of many manufacturing CIOs based on conversations over the last few weeks. CIOs are reluctant to cut headcount too far for fear of not having adequate staff to support remote working becoming the new operating model for their businesses. While the majority of companies are debating if they become 100% virtual or not, IT staff stability is key to keeping operations running today. Of the 22% who have had layoffs, the median reduction in force has been 10%. At the 75% percentile headcount reductions are reaching 15%. Industries seeing the most severe downturns in revenue are having to reduce IT staff significantly.  

  • 13% of organizations are increasing their IT budgets in response to the pandemic. The Avasant research team interviewed a government agency that had to increase its budget to update a legacy unemployment insurance system so it could handle a larger number of applicants. The research team also learned of organizations fast-tracking ERP replacements so they could gain new analytics and reporting insights. Consistent with Gartner's prediction of remote working being a growth catalyst for cloud-based IT spending during the pandemic the Avasant research team found the same.
  •  57% of organizations are leaving their IT budgets unchanged and 30% are decreasing them. The pandemic's immediate impact on revenues has made every organization re-evaluate IT priorities and de-prioritize projects that have a borderline impact on revenue and margin growth or cost reduction. The largest IT budget reductions are happening in entertainment, tourism, hospitality and retailing which are all businesses heavily dependent on personal interaction.
  • 61% of organizations are leaving capital IT budgets unchanged and 28% are reducing them. Reflecting the steady growth of operational budgets since the last recession, organizations have cut back on capital budgeting over the last decade in favor of cloud services. The Avasant research team observes there is simply not as much IT capital spending to cut in the typical IT organization as there was five or seven years ago. Gartner predicts that 2023, 91% of new CRM sales software spend will be for cloud-based deployments, up from 81% in 2018. A recent IDG Cloud Computing survey found 32% of IT budgets will be dedicated to the cloud by 2021. 11% of organizations surveyed are increasing their capital IT budgets, most likely to accelerate new digitally-based business models that can improve remote customer buying and service experiences at scale.

Sources:

Cloud IT Infrastructure Spending Continued to Grow in Q1 2020 While Spending on Non-Cloud Environments Saw Double-Digit Declines, According to IDC, IDC., June 25, 2020

Covid-19 adjusted Information technology (IT) spending growth forecast for 2020 compared to previous year, Statistica bar chart slide, May 2020

Covid-19 and the technology industry, PwC, 2020

Covid-19's Impact On Tech Spending This Year, Forbes, March 16, 2020

Gartner Market Databook, April 2020 Update (client access required), May 1 2020

Gartner Says Global IT Spending to Decline 8% in 2020 Due to Impact of Covid-19, Gartner, May 13, 2020

New Data on How Covid-19 Will Impact B2B Tech Spending, TrustRadius, June 8, 2020

Quarterly Cloud Spending Blows Past $30B; Incremental Growth Continues to Rise, Synergy Research, July 30, 2020

Understanding the Sector Impact of Covid-19 on Technology, Deloitte, 2020 (PDF, 3 pp., no opt-in)

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