How Businesses Are Spending Their IT Budget

An Executive Report On Information Technology (IT) Budgets

Key Findings

  • Optimized IT budgeting is crucial for businesses to meet their business directives as well as deal with potential future IT challenges.
  • It is essential to understand the exact best allocation mix of financial resources to effectively create an optimized IT budget.
  • Surveying other companies and by anticipating important IT trends is important.

Are you making the best allocations across crucial technology sectors?

Information Technology (IT) is crucial for modern trade and commerce to function. Deals are negotiated and sealed, goods are purchased and sold, and businesses are thriving or dying as a result of technology each day.

Yet many companies find it challenging to determine where to focus their resources when it comes to their IT budgets. Many IT leaders and company decision-makers are more prone to flying blind than having a strategic IT plan.

The norm is to react to IT problems rather than anticipate the issues before they arise. Such as when a new malware, virus, or security flaw is discovered --- only then does the threat of cybersecurity result in a plan to get that particular issue under control. The strategic IT Plan would create an infrastructure that staves off all potential new problems with minimal effort.

Or, employees complaining of slow workstations, software issues, or inadequate file storage or server space --- only then is there the effort to find a quick fix to keep the team up and running. The right strategy would be to secure talent and save budget around Managed IT Services, Cloud Services, and Data Backup and Recovery.

Ultimately, running a business from a position of always reacting results in the illusion of control --- an endless cycle requiring time, money, and people.

What is the decision?

Businesses that anticipate IT trends and challenges are better aligned to preempt problems rather than respond to them.

As the old saying goes, “An ounce of prevention is worth a pound of cure.” Nowhere is this saying more accurate than in the IT sector.

Part of anticipating and proactively addressing IT concerns is determining your strategy.

One place to start is by looking at what other successful companies are doing and where they are allocating resources for IT.

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Where Are Companies Allocating
Their 2020 IT Budgets

Sources: Spiceworks, Gartner

Companies generally allocate their IT budgets into six general categories: hardware, servers, communication and collaboration, networking, and storage and backup.

These six categories account for the vast majority of IT spend for many companies, excluding the salaries for their own IT staff.

Managed Services - (14% - 22%)

Budgets for managed services is on the rise as companies become aware of the cost benefits of having an expert team available for just about any IT solution, such as:

  • Managed storage/backup
  • Managed hosting
  • Managed hardware support
  • Managed communications
  • Managed security
  • Managed IT help desk
  • Managed cloud infrastructure
  • Managed mobile computing
  • Managed business apps
  • Managed networking
  • Managed print services
  • and more

As companies grow in size data shows they are spending more money on a managed IT service solution.

Smaller companies  (1 to 499 employees) are spending roughly 14 percent of their budget towards managed services, while mid-size companies (500 to 999 employees) are spending 16 percent, and large companies (1,000 to 4,999 employees) are spending 20 percent. Enterprise size companies are spending 22 percent of their budget allocation towards managed services.

Software - (27% - 31%)

Operating systems will account for the largest IT expenditure in 2020, with companies migrating away from Windows 7 and Windows Server 2008 R2 as the end of service date for both approaches on January 14, 2020.

A recent study confirmed that 79% of businesses still run on Windows 7. While most will have transitioned prior to the end of service, 25% plan to take their chances and upgrade later primarily due to budget restraints.

When comparing data based on company size, smaller and midsize (100-499 employees) will spend a larger portion of their IT budgets on productivity software and business support apps. Enterprise size companies (1,000+ employees) will spend a greater percentage on virtualization, communication software, and database management.

Hardware - (29% - 35%)

Hardware will still account for a large percentage of the IT budget allocation in 2020. This is not at all surprising since hardware tends to be quite CapEx intensive.

Smaller companies will spend a larger percentage (35% for companies with 1 to 99 employees) of their IT budget allocation in 2020 compared to enterprise size companies that are spending on average 29 percent.

Furthermore, most employees in the service sector require a personal productivity device to produce work. While the great migration to the cloud and increasing digitization has eliminated the need for many pieces of traditional IT equipment, companies are instead purchasing more connected devices, such as laptops and smartphones, for their employees.

The top drivers of new hardware, software, and/or service purchases are:

  • 71% - End of life
  • 68% - Refresh cycles
  • 61%  - Growth / Additional needed
  • 48% - Project need
  • 48% - End-user need
  • 37% - Budget availability
  • 34% - New technology features

Servers - (10% - 15%)

Servers and related hyper-converged infrastructure, such as uninterruptible power supplies (UPS), are the digital lifeblood for many companies and provide an essential hub for file sharing, hosting applications, and other day-to-day functions crucial for a business to function.

Servers will account for about 10% to 15% of IT budgets in 2020.

Communication & Collaboration - (4% - 8%)

As many arenas of the traditional workplace migrate to the cloud, communications and collaboration technologies are becoming more critical than ever. This is only underscored by the rise of remote working and so-called “agile” flexible workspaces.

As work increasingly leaves the confines of the traditional office, communications and collaboration infrastructures will continue to grow and demand more IT resources. Instead of landlines and telephones, that infrastructure might look like digital work apps such as Slack or even virtual reality collaboration spaces.

Currently, many companies anticipate spending about 4% to 8% of their IT budget on communication and collaboration in 2020.

Networking - (4% - 9%)

Internet access, including networking infrastructure and more, is crucial for doing business today.

It would be difficult for any company to succeed, let alone prosper without a proper network. Today's network structure must have remote-access methods over the internet, keep users up and running in the event that carrier links fail distributed computing architectures --- which separate compute, databases, and storage, and the ability to scale based on rapid growth and usage.

Companies anticipate spending on average about 5% of their total IT budgets on networking in 2020.

Storage & Backup - (5% - 7%)

It’s not called the Information Age for anything. Information and digital data are quite valuable today. Many of the instruments of service and goods that companies provide are either themselves digital in nature, are delivered digitally directly, or are in some way facilitated through digital means.

As a result, backup and storage of digital information have become urgent. While most companies don’t necessarily own their data centers, they will still want to invest in dedicated and secure storage and information backup platforms.

In general, companies will be allocating about 5% of their 2020 budget pie to storage and backup of crucial data.

Cybersecurity - (7% - 10%)

Company allocations to cybersecurity are quite a surprise. On average, companies anticipate spending 7% to 10% of their IT budget on cybersecurity in 2020. That’s nearly twice as much spending on cybersecurity as many other critical IT needs, such as storage and backup, networking, and communications and collaborations.

Perhaps this reflects the increasing seriousness in which most companies are taking the rise of cybersecurity threats. This is a good sign that as digitization continues to accelerate and increase, businesses are serious about the risk of hackers, scammers, and other cybercriminals.

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What's Driving IT Budgets in 2020?

  • Implementation of the Internet of Things (IoT)
  • Mass Cloud Migration
  • Increasing E-commerce
  • Personalized Predictive Analytics
  • Remote Work & Digital Collaboration
  • Cybersecurity

Part of creating a comprehensive IT budget is understanding how future IT trends will affect your business.

No successful company’s IT budget remains the same from year to year. Some years will be CapEx heavy, while others may require soft investments in other mission-critical IT infrastructure. Likewise, IT trends play a huge role in reflecting a company’s ever-changing IT budget year to year.

For example, as more and more goods, services, businesses, and consumers migrate to the cloud, demand for cloud-based IT infrastructure will increase. By 2020, 88 percent of businesses will have made the transition to the cloud.

Meanwhile, corresponding investments in on-site hardware, software, servers, and other pieces of IT equipment are expected to stay flat or slowly shrink over time.

From a budgetary perspective, it would make sense for an IT leader to earmark more money for cloud infrastructure while simultaneously reallocating some money away from formerly localized infrastructures.

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7 IT Trends to Consider When Reviewing Your 2020 IT Budget

  • Implementation of the Internet of Things (IoT)
  • Mass Cloud Migration
  • Increasing E-commerce
  • Personalized Predictive Analytics
  • Remote Work & Digital Collaboration
  • Cybersecurity

Part of creating a comprehensive IT budget is understanding how future IT trends will affect your business.

No successful company’s IT budget remains the same from year to year. Some years will be CapEx heavy, while others may require soft investments in other mission-critical IT infrastructure. Likewise, IT trends play a huge role in reflecting a company’s ever-changing IT budget year to year.

For example, as more and more goods, services, businesses, and consumers migrate to the cloud, demand for cloud-based IT infrastructure will increase. By 2020, 88 percent of businesses will have made the transition to the cloud.

Meanwhile, corresponding investments in on-site hardware, software, servers, and other pieces of IT equipment are expected to stay flat or slowly shrink over time.

From a budgetary perspective, it would make sense for an IT leader to earmark more money for cloud infrastructure while simultaneously reallocating some money away from formerly localized infrastructures.

Implementation of the Internet of Things (IoT)

With 5G technology on the verge of mass adoption, the rise of real-time big data is on every IT leader’s mind.

5G has always been viewed as the first step towards a truly integrated and immersive so-called Internet of Things (IoT).

While people have been talking about IoT for decades now, we are only now just beginning to see IoT implementation in real life. Think about your Apple Watch, smartphone in your pocket, Bluetooth Airpods, and other accessories that are now connected.

This is only the beginning.

5G not only allows for exponentially more connected devices, but it also provides for the transmission of exponentially more information from one device to another. In a fully IoT world, not only would your accessories “talk” to one another, so too would everything from the clothes you wear, the appliances you use, and the traffic lights you drive beneath. Everything could, with full IoT implementation, be made just as “smart” as your Apple Watch.

From a business and IT infrastructure perspective, that means increased investment in the technology and infrastructure required to maintain 5G-driven IoT.

For example, it might not be enough for a coffee shop to provide WiFi connectivity and power plugs in the near future. To compete for consumer dollars, shops that rely on foot traffic might also need to invest in localized 5G towers and other forms of IoT infrastructure to stay competitive.

Mass Cloud Migration

The Great Cloud Migration is well underway.

Everything from enterprise software to storage and backup to cybersecurity and defense is moving to the cloud. That means many companies and their IT teams will have to take a hard look at their on-premise IT infrastructure and develop a strategy for migrating some or all of their data, and IT functions into the cloud.

Hand in glove with the Great Cloud Migration is a shift in many services from one-time payments to subscription models -- think SaaS services. When it comes to budgeting, it is essential to take these transitions into account.

Increasing E-Commerce

Online e-commerce sales of physical goods alone are expected to surpass $600 billion dollars in the United States alone. This mind-boggling number doesn’t even take into account the value of non-physical products and services or the volume of e-commerce sales across the globe.

Indeed, web-based internet commerce will only continue to grow rapidly and voraciously. In 2018 alone, the e-commerce sector ballooned nearly 15 percent.

The truth is, if your business isn’t doing business online, whether, through advertising, communications, or the direct distribution of goods and services, it’s doing something wrong.

As e-commerce continues to occupy an ever more critical role in people's lives (and wreaking havoc on brick-and-mortar stores along the way), IT executives and leaders will want to consider allocating resources towards improving and refining their e-commerce strategies.

Personalized Predictive Analytics

Coupled with the continued rise and dominance of e-commerce is the simultaneous rise of personalized, predictive analytics driven by Big Data.

Big Data is old news. Companies, particularly e-commerce companies, have always been quite adept at scooping up enormous quantities of user information.

However, what’s changed in recent years is the rise of personalized, predictive algorithms (PPA). When Big Data is combined with almost infinitely scalable cloud computing, companies can generate incredibly fine-grained and detailed predictive analytics models about their customers.

While this once was the province of giant corporate conglomerates, such as Amazon, Google, and Apple, who had the workforce, expertise, and giant data centers to run their predictive models, personalized predictive algorithms (PPA) are increasingly the purview of companies of all sizes. Many companies today are already stowing away Big Data in the form of email lists, online surveys, internet advertising data, and other information touchpoints.

They just don’t know how to use it quite yet.

This is about to change!

IT departments and thought leaders should consider the potential budgetary considerations of investing in predictive analytics to better understand, and therefore compete within their own markets.

Remote Work & Digital Collaboration

Remote working is on the rise.

More and more employees not only expect to be able to work from home at least once per week, but they are also actively being encouraged to work remotely.

Since 2005, the number of Americans who work remotely has increased by 159% percent. If you think about it, this is truly nothing more than the natural outgrowth of accelerating digitization. Most employees already check their work emails at home via personal computing devices and smartphones.

Nearly half of all workers already report spending some time working from home. This growing trend of digital commuters has severe implications for IT professionals who must figure out a way to push software and other mission-critical IT infrastructure to employees without the centralized physical infrastructure found in a typical office setting.

Cybersecurity

Of course, the rise of digitization and increasing connectivity also means even more cybersecurity vulnerabilities. As the money moves online, so too do the criminals.

In the first half of 2019 alone, there were over 100 million cyberattacks on Internet of Things (IoT) access points. That means IT departments and staff absolutely cannot skimp on their cybersecurity spending in the years to come.

Cybersecurity budgets are on the rise all across the world. According to a Gartner forecast, cybersecurity budgets are projected to grow by nearly 9% this year. IT leaders should expect this number to only increase year-over-year as more aspects of businesses migrate to the cloud, become entirely digitized and connected to the web via IoT devices.

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