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During the pandemic, it seemed like every business was embarking on a new “tech binge”. Companies were being forced to rapidly adapt to changing trends, such as remote and hybrid work, and e-commerce. Leaders either needed to adopt new technology or face being left behind.
While digital transformation has continued to proliferate since then, technology spending has slowed drastically. Although companies are aware they need to adapt and adopt the latest innovations to remain competitive and productive in today’s world, they’re also facing new financial challenges.
Economic uncertainty isn’t just plaguing customers, it’s influencing companies too, forcing executives to make more cautious decisions about how to spend their deflating technology budgets. Today, around 84% of businesses say they’re concerned about an impending recession, and they’re changing their spending habits as a result.
So, what does this mean for the future of tech stack growth? Will investments in hardware and software dwindle, or will we see a new resurgence in digital transformation spending?
According to the “State of IT” report by Spiceworks, 81% of companies have made business process changes in the last year, as a result of economic challenges. Many have reduced non-essential spending, begun to renegotiate payment terms with suppliers, and even closed certain offices.
What’s more, 74% of companies have specifically changed their tech spending behaviours, reducing licenses and seats, delaying purchases, re-evaluating vendors, or consolidating technologies. Some analysts, such as PTC, believe spending will continue to diminish in the tech sector in 2024.
Their report indicates tech spending will fall below Wall Street estimates, as companies strive to keep their budgets tight in the face of high interest rates and an uncertain global economy.
However, there are also plenty of reports that contradict this view. For instance, Gartner forecasts worldwide IT spending will increase by 8% in 2024, to a value of around $5.1 trillion. Plus, the Spiceworks study mentioned above highlights that 66% of the respondents in the survey are planning on increasing their IT budgets moving forward.
Increases in spending are particularly likely among larger companies (those with more than 1,000 employees), who are focusing on finding ways to grow in the years ahead.
The latest industry reports seem to suggest that although IT spending may not fall in the years ahead, the way companies invest in technology will change. During the pandemic, tech spending increased because businesses needed to adapt to a changing landscape.
Now, the reasons behind evolving technology budgets are changing. Aberdeen’s 2024 State of IT Report found that 52% of companies are planning on increasing the priority of IT projects to help them eliminate “technical debt” and replace outdated infrastructure.
Some of the tools and resources companies relied on in the past are no longer available, or suitable for their purpose today. For instance, Microsoft stopped supporting Windows Server 2012 as of October 2023. Additionally, companies are facing rising security concerns in the age of digital transformation.
48% of respondents in the Aberdeen study said increasing security concerns would influence their purchasing patterns in 2024.
Notably, the solutions companies are planning to invest in can vary depending on a range of factors too. For instance, according to both Aberdeen and Spiceworks, smaller businesses will be spending a greater portion of their budgets on hardware (28%) in comparison to mid-sized companies (19%).
Alternatively, larger companies are planning on spending more of their money on managed services, internal services, facilities, and power.
So, how exactly will spending change as we move into 2024? On a broad level, reports seem to suggest a growing focus on aligning technology purchases with business objectives. Companies will need to define how their acquisitions will help them either save money or make more money in the years ahead, to validate each purchase.
According to Foxit, a global software maker, certain trends are emerging in purchasing strategies that could offer insight into what 2024 will hold. Some of the most significant trends include:
Much of the work companies could move “offshore” in their current tech stack has yet to be transitioned offshore. As businesses look to save money, they’re examining opportunities to reduce costs by moving legacy estates and other elements offshore, achieving more for less.
Additionally, there’s a growing focus among companies on business process outsourcing and other outsourcing initiatives that allow companies to leverage innovative technology, without paying for in-house solutions. Companies are investing in support from vendors that can help them with things like managing their servers or creating digitally enhanced CX initiatives.
The rapid increase in technology spending during the pandemic led to many companies purchasing solutions from a wide range of different vendors, to address a multitude of problems. Companies invested in dozens of different apps and tools for everything from customer service to internal collaboration, leading to data silos and increased expenses.
In one study, CMOs said they were using around 10 different data providers in their organisations. To minimise both costs and complexity in 2024, companies will begin looking for ways to consolidate their technology portfolios and work with fewer providers and vendors.
The “modernisation movement”, which involved things like migrating to the cloud and investing in the replacement of legacy systems, began to slow in 2023. Companies simply don’t have the budget to make significant changes to their technology stack in a difficult economic environment.
Foxit believes modernisation will continue to be slow in 2024. Although organisations will continue to replace legacy solutions, when necessary, they’ll also be searching for ways to preserve their existing investments for as long as possible.
Unlocking the benefits of the latest innovative technology requires companies to invest in the right skills. Unfortunately, digital skill gaps remained significant throughout 2023. According to Spiceworks and Aberdeen, many companies will be attempting to bridge these gaps in 2024.
Around 59% of businesses said they expect to increase their overall number of staff, and 41% said they specifically wanted to hire more IT staff. Of course, increased spending on personnel could mean companies have less money to invest in new technologies.
While some companies may choose to reduce their spending in 2024, many will continue to find room in their budget for solutions that promise to deliver the biggest return on investment. For instance, even in the difficult economic climate of 2023, investment in AI technologies grew.
By the summer of 2023, a third of all companies were already using generative AI in at least one business function. Business leaders will likely continue to prioritise tech investments that they believe can give them a competitive edge in their marketplace.
The economy will continue to be unpredictable in 2024, having a direct impact on how companies choose to invest in technology and digital transformation. However, many organisations know that cutting back on tech investments doesn’t make the most sense from a business growth perspective.
Aberdeen research shows that companies that invest in modernising their IT solutions have also benefited from increased ROI and profits. This suggests that even as companies take a “do more with less” approach to spending, they won’t be able to eliminate tech investments entirely.
While tech spending will undoubtedly change in 2024 and the years ahead, companies will need to continue investing in innovation if they want to thrive in today’s world.
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