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Top 2020 IT priorities hold fast amid COVID-19; spending takes hit

The biggest IT spending drivers from TechTarget's 2020 IT Priorities Survey remain relevant amid the COVID-19 pandemic, although cuts in planned spending are likely.

TechTarget's 2020 IT Priorities Survey was conducted in late 2019 and early this year, before the COVID-19 outbreak became a global pandemic. The sudden economic downturn caused by the virus has forced many organizations to cut their IT budgets and revise specific projects from what they originally planned. But the top spending drivers cited by survey respondents -- network and infrastructure modernization, digital transformation, cybersecurity and cloud computing -- are still front and center for IT teams amid the pandemic.

If anything, the coronavirus crisis has reinforced the high-level IT priorities identified by the survey, based on interviews with CIOs, technology services providers and IT analysts. With the virus forcing organizations to quickly increase their remote work capabilities and take other steps to keep business operations running, the need for new networking and security technologies, cloud-based systems and increased digitization of business processes is only getting bigger -- even if overall IT spending needs to be reduced.

That's the case at O.C. Tanner, an employee recognition and rewards company based in Salt Lake City. "Our priorities haven't changed, but our spending has," said Niel Nickolaisen, its senior vice president and CIO.

Niel NickolaisenNiel Nickolaisen

Critical IT initiatives are still being fully funded, Nickolaisen said. First and foremost is a new SAP-based employee recognition platform that will run in a hybrid cloud environment and be sold on a monthly subscription basis. O.C. Tanner's existing system is primarily a means for corporate customers to order awards for employees; the new platform, which is scheduled for general availability by year's end, contains a suite of SaaS applications for managing and analyzing recognition programs. It's designed to transform the company's revenue model to center on the software itself, according to Nickolaisen.

O.C. Tanner is also proceeding with two other big projects: a replacement of its Salesforce CRM system with Microsoft Dynamics 365, and a deployment of Nuxeo's document management software in place of a combination of Box and Documentum tools. Both are expected to significantly reduce ongoing IT costs, with a projected ROI within 24 months. 

2020 is the year that all the application modernization and legacy replacement we've been working on over the last five or six years comes together. We're not touching that.
Niel NickolaisenSenior vice president and CIO, O.C. Tanner

"2020 is the year that all the application modernization and legacy replacement we've been working on over the last five or six years comes together," Nickolaisen said. "We're not touching that, because we're probably about six months away from the finish line."

Cushioning the blow, but not completely

He added that some business factors are helping to cushion the blow of the economic problems caused by the pandemic. O.C. Tanner is privately held and debt-free, so it can take a longer-term view than many organizations. It also has a diverse customer base in various industries; because of that, the revenue declines it's seeing "have not been dramatic, at least not yet," he said.

But the IT department has put some planned spending on hold, such as discretionary expenses for travel, education and food. In addition, the midyear bonuses typically paid to IT staffers may be smaller than usual, Nickolaisen said. He expects total IT spending in 2020 to be flat with last year's level: "Whatever increases we had we've offered up as cuts."

In the TechTarget IT Priorities Survey, which was conducted from November 2019 through the first week of February, the top four spending drivers listed above were chosen by between 35% and 38% of the 2,437 respondents worldwide. AI and machine learning and deployments of ERP systems and other business applications were next on the list, at 29% and 26%, respectively.

Top IT spending drivers from TechTarget's 2020 IT Priorities Survey
Top technology initiatives in pre-pandemic IT spending plans for 2020

The top priorities from the survey align with the types of IT projects that EPAM Systems Inc.'s corporate clients are most commonly funding in the current environment: cloud migrations and digital transformation, remote work and productivity improvement initiatives.

Jitin AgarwalJitin Agarwal

In many cases, "you've got a rocket engine behind those requirements" because of the business changes forced by the virus, said Jitin Agarwal, vice president of enterprise products at EPAM, a software development and consulting services firm based in Newtown, Pa.

Security, reliability and scalability upgrades are also critical elements to ensure that IT networks and systems can support more remote workers and increased digitization, Agarwal added.

Lasting IT effects from COVID-19

Gartner analyst Paul Proctor likewise sees digital transformation, cloud adoption and remote work all accelerating due to the pandemic -- and he thinks that's likely to have lasting effects on IT infrastructures. "A lot of people who have gone home [to work] are going to stay home," he said. The same goes for new systems being deployed in the cloud instead of on-premises data centers.

According to the IT Priorities Survey, digital transformation is still a work in progress in most companies. Only 16% of 1,923 respondents said their organization had reached an advanced stage on it, while a combined total of 41% said they were just getting started or still researching potential project options.

Digital transformation status data from TechTarget's 2020 IT Priorities Survey
Where organizations stand on digital transformation initiatives

While the pandemic provides an impetus to accelerate those efforts and the other top IT priorities, the economic calamity resulting from virus-related lockdowns and business restrictions will limit what many IT departments can spend this year. In the survey, 53% of 1,625 respondents said they expected their organization's IT budget to increase in 2020 vs. last year, another 35% expected spending to be flat and 12% anticipated budget decreases. But those results now seem certain to be too optimistic.

Gartner this month predicted that worldwide spending on IT in 2020 will fall by 8% year-over-year. IDC has lowered its global IT spending forecast every month since January, from a 5.1% increase then to a 5.1% decline at the end of April; it also outlined a more pessimistic scenario with a 9.5% drop-off.

In early April, Forrester Research detailed three scenarios for U.S. IT spending this year: one with a 5.2% decrease, one with a 9% reduction and a worst-case one that it didn't quantify. The second scenario, which is based on the economic downturn continuing into 2021, now looks more probable, Forrester analyst Andrew Bartels said in an April 29 blog post.

A diverse impact on IT departments

But the pandemic's impact on IT varies widely in different industries and companies.

Ben NiernbergBen Niernberg

"It's a cliché to say, 'everything under the sun,' but that's what we're seeing," said Ben Niernberg, executive vice president at MNJ Technologies, an IT and managed services provider based in Buffalo Grove, Ill. Some IT projects are being pushed out to 2021, others are being moved up from then to now and some companies have "put the skids on everything because they just aren't functioning," Niernberg said.

The hardest-hit industries on IT spending include hotels, restaurants, amusement parks and other consumer services businesses, plus transportation, manufacturing and retail, IDC analyst Jessica Goepfert said in a May 7 webcast. At the other end of the spectrum, the least-affected ones that she listed include government, healthcare, education and telecommunications.

In an interview, Bartels said many retailers and airlines are in survival mode and may have to put off any big IT projects that aren't critical to ongoing business operations. Companies that haven't lost as much business can be more selective about delaying projects, while e-commerce companies, telecoms and other organizations with steady or growing revenue may speed up their IT spending. "It's hitting unevenly, and it's going to hit unevenly as we move forward," he said.

New IT flight pattern for jet maker

For Aerion Supersonic, 2020 IT spending has "changed significantly" because of the pandemic, said Bissell Smith, CIO and executive vice president of enterprise systems at the company, which is developing a supersonic jet for business travel and other commercial uses.

Bissell SmithBissell Smith

The business impact of the COVID-19 outbreak is requiring Aerion, based in Reno, Nev., to stretch out its overall spending, IT included, Smith said. Planned implementations of ERP, material requirements planning and manufacturing execution system software have all been postponed and realigned to a new schedule for the jet development program that extends the anticipated start date on production of the Aerion AS2.

For now, the company is focusing on completing deployments of electronic design and product lifecycle management systems that will support its goal of creating a digital twin of each jet to aid in producing and maintaining the planes, which will be customized for individual buyers. The rest of the systems architecture will then be deployed over three years, with roughly a one-year delay from the original schedule, Smith said. "It's not adjusting the plan. It's adjusting the execution of the plan."

It's not adjusting the plan. It's adjusting the execution of the plan.
Bissell SmithCIO and executive vice president of enterprise systems, Aerion Supersonic

Some other necessary IT investments are also still being made. Smith said Aerion already had the infrastructure in place to support working from home but added Microsoft Teams to aid collaboration by its employees, who have all made the switch to remote work during the pandemic.

Aerion executives are now discussing whether all employees need to work alongside one another in an office campus in the future.

"I think what COVID-19 will do for us is change our thinking about working together and what's really necessary, and the physical interactions that are really necessary," Smith said. "And that will drive new requirements into the business, without question."

Raj PatilRaj Patil

As CIOs revise their budgets to fund existing IT priorities and new pandemic-related ones while reining in spending, other things that are being deferred include upgrades of on-premises networks, servers and storage devices and purchases of new laptops and landline phones, according to consultants.

"Anything that's discretionary clearly is going on the back burner right now," said Raj Patil, CEO and president of Orion Innovation, a technology services firm based in Edison, N.J.

A bright spot on IT spending: the cloud

Both Gartner and IDC expect spending to be down this year in all technology categories except cloud services, which they forecast will see double-digit growth. IDC analyst Stephen Minton said in the May 7 webcast that he thinks IaaS spending will increase by almost 30%, partly because of new deployments and partly because it's hard for users to turn off existing cloud systems and stop paying monthly subscription fees on them and the data they hold. "None of that data is going anywhere," he said.

Other than that, Minton sees potential spending increases only for some specific technologies in response to the virus outbreak. For example, in an IDC survey of IT buyers conducted this spring, the top technologies cited by the 555 respondents for increased purchases because of the pandemic include teleconferencing, remote access and learning, virtual workspaces, mobile devices and collaboration tools, followed by cloud services and automation software.

Niernberg and Patil also pointed to increased interest in technologies -- such as software-defined wide area networks and desktop as a service tools -- that, like cloud services, can be purchased via subscriptions and budgeted as operating expenses without requiring large capital expenditures upfront. Growing use of the cloud was already driving a shift from Capex to Opex spending, "but this put the pedal to the metal," Niernberg said.

Minton said enterprise IT demand remains fundamentally strong, and he expects IT spending to rebound once the economy improves. But he cautioned that even IDC's pessimistic scenario isn't a worst-case one. If the COVID-19 crisis intensifies and requires new lockdowns, CIOs may have to further revise their IT priorities and spending plans, he said. "That brings up issues that I don't think any of us want to think about, but we do have to think about."

At O.C. Tanner, Nickolaisen said he hasn't made any changes to the company's long-term IT plans because he hopes the pandemic's business impact will be temporary. For example, a phone system update is still planned for 2021. But company executives will look at where things stand later this year and see if further IT spending adjustments are needed.

"I tell my team that if the downturn is deep, we'll have to do something else, or if the downturn is long, we'll have to do something else," he said. "But I don't expect that we'll have to do much more. At least, that's the hope."

Editor at large David Essex and executive editor Ed Burns also contributed to this story.

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