Tech Insight : ‘Only’ Double IT Spending Growth (To $5 Trillion)

New research from Gartner has predicted that global IT spending this year will reach $5 trillion and IT spending growth will be more than double that of 2023.

A First – Spending More On IT Than Communications 

In its IT spending forecast, Gartner predicts that the massive $5 trillion global spend means that spending on IT services will surpass communications services spending for the first time.

Spending Growth More Than Double 

Another standout figure from the forecast is that the IT spending growth rate of 6.8 per cent in 2024 will be more than double that of the 3.3 per rate in 2023. These key spending and growth figures (even though the 6.8 figure is less than the 8 per cent forecasted the previous quarter) indicate that despite fears of a slowing IT sector, things are very much looking up for the year ahead.

The Largest Spending Segment 

In fact, Gartner forecasts that with spending on IT services is expected to grow 8.7 per cent this year in 2024, reaching $1.5 trillion, IT services spending will become the largest segment of IT spending, even above that of the communications and software sectors.

Gartner says the reason for this IT services growth is mainly due to enterprises investing in organisational efficiency and optimisation projects as these types of investments could be crucial during this period of economic uncertainty.

For example, as John-David Lovelock, VP Analyst at Gartner explains it: “Adoption rates among consumers for devices and communications services plateaued over a decade ago. Consumer spending levels are primarily driven by price changes and replacement cycles, leaving room for only incremental growths, so being surpassed by software and services was inevitable.” 

What About AI?

Although generative AI is essentially the next industrial revolution, it is still relatively new and hasn’t made much impact on near-term IT spending. Gartner suggests that the reason for this is that it “blindsided organisations and boards,” meaning that CIOs are being cautious with their spending.

Therefore, it’s likely that 2024 will be the year of planning for Generative AI, but IT spending will be driven by more traditional forces e.g., profitability, labour, and “a wave of change fatigue”. 

What Is ‘Change Fatigue’ ? 

Change fatigue refers to the resistance or passive resignation that employees may feel towards organisational changes, leading to symptoms such as apathy, resistance, passive resignation, frustration, and burnout.

The thinking is that pandemic-related disruption to work in recent years, combined with factors like turbulent economic conditions, rapid digitisation, and the sheer volume of changes have led to employees’ ability to cope with change dropping to 50 per cent of pre-pandemic levels.

Gartner attributes the fact that the overall IT spending growth rate for 2023 was 3.3 per cent, only a 0.3 per cent increase from 2022 to “fatigue among CIOs”. 

Could Lead To Change Resistance 

It is thought that one of the effects of change fatigue is that it could have a negative effect on IT spending by causing “change resistance” among CIOs, i.e. CIOs hesitating to sign new contracts or to commit to long-term initiatives, or to take on new technology partners. This change fatigue and resistance may mean that CIOs will be looking for higher levels of risk mitigation and greater certainty of outcomes before committing to new initiatives.

MSP Budgets Up Due To Surging Demand 

Another indicator of a healthy IT sector in 2024 is given by new research from ETB Technologies which shows that MSP budgets are up a massive 70 per cent due to surging enterprise demand. The research, based on the answers of 250 leading MSP figures on current trends around spending, found that 80 per cent have increased their spending and 67 per cent have doubled their budget size.

The research attributes these figures to the impact of world events in recent years, e.g. the pandemic, Brexit, geopolitical and economic turbulence, climate change, and supply chain disruptions, leading to an “almost universal shift” towards a hybrid cloud-based strategy. This type of cloud strategy is where an organisation uses a mix of on-premises, private cloud, and public cloud services with orchestration between the platforms. This is likely to be more preferred in these uncertain times because it allows businesses to balance the need for security and control with the flexibility and scalability of cloud services (and it’s cost effective).

What Does This Mean For Your Business? 

As highlighted in Gartner’s forecast, although the IT sector has a healthy outlook with a doubling of growth in the IT spending rate, economic uncertainty is leading to enterprises investing in organisational efficiency and optimisation projects. This, in turn, is one of the main reasons why IT services spending is set to surge this year (higher than communications spending). Although the AI revolution is bringing massive change, it seems the fact that it may have ‘blindsided’ CIOs means that it won’t account for a large amount of IT spending this year, but 2024 will be a year for AI planning instead. This means that IT spending in 2024 will be driven by more traditional forces.

However, the issue of change fatigue among IT spending decision-makers does look set to make them more cautious and could have a downward effect on IT spending this year. This could mean that organisations need to work on trying to understand the factors contributing to change fatigue and employing targeted strategies to help alleviate the adverse effects. On the upside in the world of MSPs, surging demand for hybrid cloud-based solutions is necessitating major increases in budgets and spending.

Overall, 2024 looks like becoming a good year for IT services spending and although the AI revolution is here, we’re still more at the planning than spending stage, so it’s a case of waiting a little longer before AI makes a major impact in spending figures.

Tech News : Autumn Statement Suggests IT Spending Boost

The announcement of measures intended to boost investment in innovation and technology in UK Chancellor Jeremy Hunt’s Autumn Statement could mean increased spending on IT and AI.

Measures To Boost The Tech Sector

The UK Chancellor’s Autumn Statement introduced a range of measures aimed at boosting the tech sector, with potentially significant implications for tech spending and investment in innovation. Some tech commentators have suggested that this could mean that private-sector IT buyers will see a long-term boost. Here we take a look at how the measures announced could affect tech spending, their potential overall impact, and any negative effects they might have.

Positive Impacts on Tech Spending 

Some of the key announcements in the Autumn Statement that could have a positive effect on tech spending include :

– A permanent full expensing policy. Mr Hunt’s decision to make the full expensing policy permanent allows private sector IT buyers to write off the cost of IT equipment against tax. This policy, therefore, looks likely to encourage more investment in IT infrastructure, as companies can deduct these expenses from taxable profits.

– Enhanced R&D tax credits. The merger of the R&D Expenditure Credit and SME schemes from April 2024 will make more companies eligible for claims supporting innovation. It’s thought that around 5,000 additional small businesses may benefit, thereby helping to foster a more innovative environment in the UK tech sector.

– Investment in AI and quantum technologies. The government’s commitment of £500 million over two years to establish additional ‘compute innovation centres’ and the funding being part of a larger £1.5 billion investment is intended to enhance the UK’s capabilities in AI. The Statement also outlined five quantum missions as part of the ‘National Quantum Strategy.’ These missions focus on establishing advanced quantum computing capabilities and networks and incorporating quantum technologies in various sectors such as healthcare, transportation, and defence by 2030 and 2035. One key benefit of quantum computing being made available to healthcare could of course be breakthroughs in areas like drug discovery. Thinking back to the pandemic, many peopel may remember how quantum computing was something that was being used to help speed the way to developing effective vaccines.

– Skills development Initiatives. It’s long been known that the UK has a tech skills gap which is something that threatens to hamper its ambition to become an international technology superpower. Therefore, a £50 million investment to pilot ways to increase apprenticeships in key growth sectors (including engineering) aligns with the need for a skilled workforce to sustain tech advancements. Mr Hunt also announced three more investment zones (on top of the 12 announced in March) in order to boost advanced manufacturing in the West Midlands, East Midlands, and Greater Manchester.

– Support for clean energy and infrastructure. The outlined efforts to cut grid access delays and provide financial incentives for clean energy businesses will likely accelerate the UK’s transition to a low-carbon economy, benefiting green tech initiatives. For example, a £960m Green Industries Growth Accelerator fund may help to support emerging technologies in clean energy and the transition to net-zero.

Not All Positive 

Some of the Autumn Statement announcements, however, may not be such good news for the UK’s tech sector. For example, some of the potential challenges and negative effects include:

– Negative economic forecasts and tight public spending: Despite some of the ambitious measures announced, their success is essentially contingent on economic forecasts, which are currently revised downwards. A significant squeeze on public spending due to inflation may also hamper the plans for digital transformation, especially if budget constraints affect public sector investments.

– Implementation and collaboration needs. The effectiveness of the many potentially positive measures announced depends on the government’s ability to implement them quickly and efficiently. Also, government collaboration with the tech sector is crucial to ensure these policies translate into tangible growth and innovation. For example, the government will need to work alongside tech companies, startups, and industry experts to understand their needs, address potential challenges, and ensure that the policies are actually practical and beneficial.

– A reliance on estimates and uncertainties. Some reforms, like those to the energy grid and pension and capital market reforms, are unfortunately based on estimates that may not actually materialise as expected. If these projections fall short, it could limit the overall impact of the statement’s measures on tech investment and growth.

What Does This Mean For Your Business? 

The Autumn Statement’s initiatives offer a promising landscape for businesses beyond just IT buyers, possibly signalling a transformative shift in the UK’s approach to technological advancement and innovation. The decision to make full expensing permanent, coupled with enhanced R&D tax credits, may help present a financially viable path for businesses across various sectors to invest more boldly in new technology and innovation projects. This change not only eases the financial burden of such investments but may also go some way to encouraging a culture of continuous innovation.

The substantial investments in AI, quantum computing, and compute infrastructure could open up new avenues for businesses to access and leverage advanced technologies. These technologies, for example, have the potential to revolutionise product development and operational efficiency across a wide range of industries. As a result, organisations can look forward to not only improved business-processes but also the possibility of developing groundbreaking new products and services.

The focus on developing much-needed tech skills in the UK workforce through apprenticeships and training initiatives is another critical aspect. This approach could help give UK businesses access to employees equipped with the necessary skills to navigate and contribute to an increasingly complex technological landscape. This is particularly crucial at a time when technology is evolving rapidly, and the demand for skilled professionals is at an all-time high.

Businesses with a focus on green technologies or those looking to transition to more sustainable practices may get support through initiatives aimed at reducing grid access delays and promoting clean energy. This not only aligns with global trends toward sustainability but also offers a competitive edge to businesses that prioritise environmental responsibility.

However, businesses in what are challenging economic times are likely to see the announcements in the broader economic context. The success of these measures is not guaranteed and is contingent upon effective implementation amidst economic uncertainties and potential public spending constraints. Therefore, businesses need to stay informed and agile, ready to adapt to changing regulations and economic conditions.

Looking on the bright side, this year’s Autumn Statement generally appears to present a multifaceted opportunity for businesses to grow, innovate, and adapt in a rapidly evolving technological environment. If UK businesses can capitalise on the initiatives announced and navigate the associated challenges, they may be better positioned to make the most of new technologies like AI.