Smart Organizations Prepare for Unsteady Economy by Increasing IT Budgets

Despite growing speculation about an economic downturn, IT leaders must prepare for an uncertain environment while supporting digital transformation, the never-ending need to deliver competitive differentiation and the pursuit of operational efficiency. Risk management and robust cybersecurity also remain critical, as does the need to optimize customer and employee experiences.

With all these competing, mission-critical projects, how do IT leaders prioritize investments that will deliver immediate ROI (such as operational improvements or efficiency gains) and set the stage for long-term economic growth?

Even in an unpredictable economy, IT leaders are investing

A Spiceworks Ziff Davis survey of 968 IT professionals with companies in North America, Europe, Asia and Latin America answers some critical questions about IT spending in 2023.

Not surprisingly, 83 percent of those surveyed expressed concern about the threat of a recession in 2023. Around 50 percent have taken or plan to take steps to prepare for a slump in economic activity. Those measures include reducing nonessential spending, reevaluating vendors of contracts, decommissioning infrastructure and consolidating redundant technology.

Amid economic uncertainty, there’s surprising news about the IT department’s funding. Fifty-one percent of organizations will increase their IT budget in 2023. To underscore the critical role of the IT department and the need to fund its efforts in good and bad times, only 6 percent will reduce their IT spending. Overall, IT budgets are predicted to grow by 13 percent over the prior year.

Interestingly, while a recession may be on the horizon, 58% of respondents predict their organization will see a year-over-year increase in revenue, while 22% envision no change. Only 10 percent expect a drop in YOY revenue.

What’s driving the increase in IT budgets?

The Spiceworks Ziff Davis survey identifies several factors impacting IT budget growth in 2023. First, many organizations need to upgrade outdated infrastructure as part of the effort to digitize, in response to competitive pressures, or improve operational efficiency.

Second, there’s an increased priority on IT projects. This aligns with other surveys from Equinix and Red Hat, which also highlight the broad range of critical projects under the IT department’s remit and the outsized role the department has on an organization’s success. Investment in IT initiatives is often foundational to generating efficiency gains in different parts of the organization.

As an example of how IT investment can generate efficiencies, organizations that reduced reliance on outside contract support, saved $1.3 million in outsourced costs. Given its inability to unlock multiple streams of cost savings and generate revenue, the IT department’s role will only continue to grow in its visibility and importance.

A third factor driving the growth of IT budgets is the need for increased security spending. This is due to increased government oversight and the need to support remote workforces. How and where to increase security spending should be at the forefront of IT leaders’ minds throughout the coming year.

Where is the IT department investing its 2023 budget?

• Hardware: 30%
• Software: 28% 
• Cloud-based services: 23% 
• Managed services: 18%

Within those budget items, let’s look closer at  the top expenditures.

• Hardware: Laptops, desktops and servers consume 43% of the budget
• Software: Security software, productivity software and operating systems consume 32% of the budget
• Cloud expenditures: Productivity solutions, online backup/restore/recovery and business support applications consume 31% of the budget 
• Managed services: Managed business apps, managed security and managed hosting consume 31% of the budget

IT leaders rising to meet the challenge

While an economic slowdown looms, IT teams are increasing budgets, even if they anticipate slower economic growth than usual. To navigate that challenge successfully, IT leaders have to accomplish a balancing act—they must be nimble enough to adjust to a potential downturn in business while also supporting growth with increased security. This ability to juggle conflicting priorities is how IT earns and keeps a seat at the table and how careers are made.

Whether you are still developing next year’s budget or attempting to benchmark what you’ve finalized, it’s vital to keep the IT department at the center of the businesses they support. When so much remains uncertain, what is clear is that the IT department has to play a pivotal role in helping every business thrive in 2023.

Read “4 Priorities to Manage Contracting Complexity and Increase Profitability” to learn more about getting the most out of your technology investments.