Digital transformation budgets are on the rise for 2019, according to industry analyst predictions, with investments...
in technologies for those initiatives driving the increase.
In an October report, Gartner projected a 3.2% increase in worldwide IT spending, going from $3.7 trillion in 2018 to $3.8 trillion next year.
Meanwhile, an annual survey from Spiceworks, released in September, found 89% of companies expect their digital transformation budgets to grow or stay steady in the upcoming year.
Such findings indicate a growing enterprise demand for the technologies that will help them transform their organizations into digital companies that are able to compete in the new economy, as they pay to shed legacy systems in favor of cloud services and other agile capabilities.
"This is all about the move to digital business," said John-David Lovelock, chief forecaster in Gartner's technology and service provider research group. "They're moving to a digital ecosystem, where they need to work more tightly across their business, with their supply chain and with their customers. They're moving toward more dynamic environments, and they can't do it with legacy systems and ... customized code."
Todd Tetreault, CIO of Dorel Juvenile, a maker of juvenile products based in Montreal, is seeing such trends play out in his own IT budget. Although he couldn't release dollar figures, Tetreault said he expects his digital transformation budget to jump about 10% for 2019.
He explained that much of the increased spending will go toward "closing technical debt," such as switching off legacy systems that are slow to configure, cumbersome to change and expensive to operate, in favor of more nimble services, such as SaaS products.
Identifying the spending priorities
"There's a huge amount of market transformation, and our platforms have to keep up," he said.
Tetreault said his IT budget increase also reflects growing investments in capabilities to support new business initiatives, as the company seeks to better engage customers directly and to compete in a digital marketplace that has decimated retailers, such as Toys R Us -- where its products have traditionally been sold.
Todd TetreaultCIO of Dorel Juvenile
"We can't rely on brick-and-mortar shelf space anymore. We have to be digital," he said, adding that such market forces are spurring investments in programs critical to the company's digital initiatives, as well as those that strengthen the company's data curation, so it can effectively support data-driven marketing and customer engagement.
He said he's upgrading the company's ERP system to increase its interoperability, as well as investing in collaboration software to enable agility among teams. For instance, he invested in cloud-based project management software from Clarizen to reduce friction among workers as they seek to move quickly on product development projects.
The Spiceworks survey shows that many organizations are looking at similar spending priorities. It found 56% of digital transformation budgets at large enterprises -- companies with 5,000 or more employees -- will be up in 2019, with 64% of them saying the need to upgrade outdated IT infrastructure is driving the increases. They also cited growing security investments as driving increased spending.
Tammy Bilitzky, CIO of Data Conversion Laboratory (DCL), based in Fresh Meadows, N.Y., said she is seeing that mix of market forces influence her budget figures for 2019 -- as it has for years.
"The criticality of technology has never been a question at DCL," she said. "Our investment in IT has been increasing, year over year, both in dollar figure and percentage of revenue, and we are budgeting significant increases in 2019."
Bilitzky listed several specific initiatives as the primary factors contributing to budget growth for 2019. Those initiatives include security-related projects, R&D work around artificial intelligence and process automation, and infrastructure improvements to further shed legacy systems. She said she also plans to hire more technologists -- something she has been doing steadily for the past several years.
Aligning the budget with business goals is key
"Our IT budget is very closely aligned with our business goals, [both] tactical and strategic," she added. "It is a reciprocal process -- business projects drive technology funding and technology requirements, such as security, and the European Union's General Data Protection Regulation results in correlated business projects and spending."
Spiceworks found organizations expecting digital transformation budget increases in 2019 will do so by an average of 20%. Its survey found upgrading IT infrastructure is by far the biggest driver for higher IT budgets, followed by an increased priority for IT projects, security concerns, employee growth and regulatory changes.
But CIOs and analysts said such survey findings and overall budget figures only tell part of the story. Spending is up in some areas, they said, but CIOs still focus on driving efficiencies and reducing costs in other areas -- particularly among commodity IT products and services.
Lovelock pointed to Gartner's findings: Spending on commodity items, such as communications and data center technologies, is expected to be either flat or down, while spending on IT services and software is expected to go up. He said he thinks organizations should look at their IT spending not as capital expenditures and operational expenditures, but rather what should be considered commodity versus differentiated customization.
Leading organizations are "investing where it makes the difference," he said, noting that they're spending on emerging technologies to build out their artificial intelligence, blockchain and IoT platforms. Many companies have increased their spending on cybersecurity, as security has become a board-level priority, Lovelock added.
Digital add-on versus digital transformation
Lovelock and others also noted their research into digital transformation spending shows leading organizations understand that technology transforms their businesses and have set their budgets accordingly, while organizations that still talk about being tech-enabled or see IT as a cost center are setting budgets that mirror those ideas, with money going into add-on technologies and services that either won't differentiate them or, worse, won't ultimately support them in the digital economy.
Sheila Jordan, CIO of Symantec, a cybersecurity software and services firm based in Mountain View, Calif., said her 2019 budget, which went into effect April 1 of this year, reflects the company's overall view of technology as "a natural extension of the company's strategy."
Jordan said IT is still expected to optimize its spending, so she and her team are looking at where processes can be automated, commoditized and even shed.
However, Jordan said her 2019 budget is still up over 2018, although she could not share actual figures. She said the increases are concentrated in four areas -- security, regulatory and compliance, SaaS and AI -- that she sees as critical for the company's digital evolution and specifically for its efforts to create a seamless end-to-end customer experience designed "to surprise and delight."
"That," she added, "requires more work and more heavy lifting for most IT departments, including ours."
And for most organizations, including Symantec, it requires more money.