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How (and How Much) are Organizations Spending on IT?

It happens all the time: leaders of organizations ask me how they should be spending their IT budget. So, I wanted to give you some insight about IT spending in general—and about how organizations like yours are spending their technology budgets. Here are some of the questions I regularly get asked about IT spending trends (and my answers).

Q: How much are organizations spending on IT?

A: Organizations increased their IT budgets in 2014. Gartner, the world’s leading information technology research and advisory company, reports a 2.1% increase in overall global IT spending from 2013. Looking ahead, Gartner forecasts that 2015 will be an even better year for IT vendors, with companies spending $3.9 trillion. That will represent a 3.7% gain over 2014, if the forecast turns out to be accurate.

Q: How much should organizations be spending on IT?

A: In general, you should be spending 3% of your revenue on IT. If you are in an aggressive growth mode, or trying to catch up from severe cuts to your IT budget during a specific period of time, you are probably looking at spending 4-7% of your total revenue on IT.

Q: What are organizations spending their money on?

A: Cloud, Cybersecurity, and IT strategy.

Cloud:

The intrigue and uncertainty surrounding the cloud have dissipated. Organizational leadership teams are now educated about the cloud and people are confident in the cloud’s ability to make their businesses run a bit more smoothly. According to the 2014 IDG Enterprise Cloud Computing Study, 69% of organizations have either applications or infrastructure running in the cloud. Some studies put this number higher, at around 90 percent. According to figures published by IBM, end-user spending on cloud services could exceed $180 billion by the end of 2015. IBM also forecasts that the global cloud equipment market will reach $79.1 billion by 2018. Already over half of the U.S. government is in the cloud, with government agencies spending around $2 billion on cloud services each year.

According to PC World’s infographic about the trends in cloud adoption and maturity, benefits reported by cloud adopters include a significant reduction in time spent managing IT and a dramatic decrease in outage and downtime worries. Gartner included cloud computing as one of the 10 strategic technology trends for 2015 and predicts continuing, widespread adoption.

Cybersecurity:

The recent Target, LivingSocial, Sears, and Sony high-profile cyber-attacks have made cybersecurity a discussion in almost every board room and living room across the U.S. A recent Symantec study found that 40% of cyber-attacks are against organizations with fewer than 500 employees. More startling? According to the National Cyber Security Alliance, one in five small businesses falls victim to cybercrime each year. And of those, some 60% go out of business within six months after an attack. That’s one of the reasons why Gartner estimates that worldwide spending on information security will reach $76.9 billion by the end of 2015. They also predict that by 2018, more than half of organizations will invest in data protection, security risk management, and security infrastructure management to bolster their defenses. Security now deserves a seat at the table—everything from security software and hardware to access and password policies must be carefully scrutinized in today’s environment.

IT Strategy:

According to PricewaterhouseCoopers, CEOs are increasingly realizing the impact of technology on their organization and their customers. How can they capitalize on this impact? Technology consultants or on-call CIOs. The security of corporate data and technological prowess are now factors on which organizations and the competence of organizations’ leadership teams are judged. CEOs need a trusted navigator to help them use technology for competitive advantage. They need a partner who understands business as well as technology—and how the two can work together to drive profits.  Corporate boards are prioritizing IT spending as highly as investments in sales because they now understand that IT is an operational and strategic advantage. The increasing participation of C-level executives in the IT arena illustrates a continued shift in thinking about IT as a necessary cost to a business advantage.

Q: Which industries are spending the most on IT?

A: Almost all industries anticipate an increased IT spend in 2015. Why? Because cybersecurity is a major concern. To that end, industries that are heavily regulated or deal with confidential or personally identifiable information on a regular basis (think healthcare, banking, and law firms) will spend the most on IT solutions this year.

Last Word

IT budgeting has always been both a philosophical and practical discussion.  Does your organization view IT as a need or as an advantage?  Is it a competitive tool or a necessity?  By now, most organizations are realizing the value of technology as not only a way to sustain revenue, but to grow it.  With this paradigm shift comes an industry sifting of sorts. IT providers who offer services, as opposed to strategic solutions, will face severe business challenges as clients continue to recognize the increasing value of true business IT consulting.

About ahmed@kalaweeza.com

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