Cyber, cloud and automation: UK IT leaders reveal their spending priorities
IT budgets hold firm but there are tough choices to be made
Recent events, including the pandemic, have demonstrated the central importance of IT; if it were ever in doubt, it’s certainly not now.
IT spend has largely held firm, despite turbulent times. But as technology finds itself embedded in more and more areas of the business, IT leaders have a lengthening shopping list to prioritise, needing to balance defensive measures and regular upgrades with extras like supporting remote working and ensuring there's enough in the pot for creative innovation.
In uncertain times, businesses turn to technology to see them through. IT budgets, while not immune to spending restrictions, are at least more resilient than some.
Of 130 senior UK IT leaders polled by Computing last month, most said that real-term IT budgets had increased in the last 12 month compared with the period prior. Half said they had risen in real terms, versus 21% who reported a drop, leaving 29% with no change.
Those reporting an increase said the extra money would be mostly used to "keep the lights on," supporting routine activities and upgrades. However, many were investing more in ongoing digital transformations, security, cloud and automation - all seen as essential to organisational success in the longer term.
The 21% who reported a decrease were disproportionately in the public sector, and in business & professional services. The public sector in particular has suffered years of real term cuts and finds it hard to fill IT vacancies in vital areas like cybersecurity. Meanwhile, some business & professional services firms said that with customers tightening their belts, they've been unable to increase fees to offset inflation, meaning cuts had to be made including in IT.
Other negative pressures included the aftermath of the pandemic. Having expanded to meet the immediate need, budgets were now being clawed back. Mergers and increased device longevity were also mentioned.
Most of our respondents felt their major projects were achieving the expected return on investment. Given the unpredictability of supply, and that in the best of times IT projects are notorious for cost and time overruns, this seems like a good result.
Among the 16% who said RoI wasn't being achieved, there was mention of over-optimism and overselling during the procurement process; benefits depending on factors outside of the control of the IT department; and unexpected problems with the new products.
"In my view, our seniors are oversold the benefits, and the reality of the benefit is somewhat less when actually delivered" (Telecoms)
"Difficulty in getting the organisation to change to make best use of new technology" (Education)
"The major project has been moving to cloud-based HR and finance systems. This was decided primarily by the finance director with insufficient input from IT and HR. The new systems are barely fit for purpose" (Charity/third sector)
Where is the money going?
IT makes up 6% of total organisational spend on average, according to our respondents. So what are IT leaders spending it on?
The top item will come as no surprise: cyber.
Thirty-six per cent said they were spending more on security infrastructure versus 1% who said they were spending less, giving us a net figure of +35%, as seen in the chart above.
Sadly, this picture is unlikely to change any time soon. The ransomware business is just too lucrative, state sponsored actors find it too easy to break and enter and seem increasingly willing to do so, and with supply chain attacks everyone is a target, if only as a stepping stone to larger prey. It sometimes feels like a losing game.
Salaries
Second on the list was salaries. The IT skills gap is still very much with us, and those with a talent for security, AI/ML, data science and DevOps can command hefty wage packets and pick and choose from what's on offer.
And it does seem businesses are finding it particularly tough to attract the right IT talent. Forty-five per cent said it's harder to recruit this year than last year, versus just 11% who said it was easier.
Fifty-three per cent of respondents felt their location was a little too dowdy to attract these high fliers, while a whopping 67% - two thirds - felt the same about their sector, which may simply reflect the fact that recruitment is difficult for almost everyone right now.
Brexit was another issue making recruitment more difficult. Half of our respondents said leaving the EU has had a negative effect on their organisation, limiting the pool of talent and increasing the cost of recruitment as well as increasing prices and adding to logistical bureaucracy.
"Brexit is a disaster and should be reversed as soon as possible" (Education)
"Supply chain and procurement issues are increasing costs" (Distribution & transport)
"Imported equipment more expensive and harder to get hold of" (Technology)
"Increased costs to various products and services and more complexity in shipping" (Business & professional services)
"Resourcing is harder, travel is harder, purchasing is harder. Investment becomes disbalanced across countries whereas before it was balanced" (Technology)
But a few had seen benefits from the UK being outside the EU, mainly those with international operations.
"We have increased penetration in other markets and expanded our European office" (Technology)
"In flow of business previously managed by UK now with us in Ireland" (Business & professional services)
Cloud - still on the up
Third on the list of higher spend was public cloud. Only one respondent of 130 said they were spending less in this area.
Public cloud services are encroaching on more and more business activities, both as a platform for third-party services and as a way to connect various applications, locations and data sources together in a hybrid setup.
We do hear the occasional tale of "declouding", but the trend is still very much in the other direction, which is why year-on-year, revenues at the big cloud companies continue to rise in double digit percentages.
Of course, the cloud companies had a very good pandemic as many more of us were forced to work remotely. Despite a significant push in some quarters to roll back to Normality 1.0, more than half of our respondents demonstrated a relaxed attitude to working from home (WFH). Thirty-seven per cent said "We're happy for those that can to work from home", while 21% favoured the carrot over the stick, coaxing people back to the office rather than laying down the law.
Cloud is also seen as a crucible for innovation. As well supporting WFH, storage, backup & recovery and office use cases, respondents investing in new cloud infrastructure were pursuing automation (23%), DevOps (23%), edge compute (20%), AI/ML (18%) and IoT (17%) use cases.
However, as we explored in a previous article, cloud prices have been rising, often at above-inflationary rates. Organisations continue to take measures to optimise costs.
Doing more with data
After cloud services on the spending graph (at the top of this article) comes a clump of three related topics: data management, AI/ML and analytics.
The capacity to use data to support decision-making and automation and to provide the basis for innovation is one reason that IT budgets have remained reasonably intact. It's something that most businesses just can't do without.
This is much broader than AI. Nevertheless, it's AI that's grabbing much of the attention at the moment. Half of the respondents were actively adopting more AI/ML. Another 30% said they're consuming more passively, as AI appears in products and services they use.
A few of the many AI-enhanced use cases respondent had been pursuing over the past year are listed below.
- GPT in place of search when information gathering
- Automating legal processes
- Predictive maintenance
- Onboarding and offboarding staff
- Supply chain optimisation
- Assisting with coding
For some, ChatGPT has taken the place of search engine. A risky strategy perhaps, given LLMs' acknowledged propensity for hallucinating, but so long as users are aware of that and check sources carefully, AI chatbots are undoubtedly useful for gathering and summarising information.
Then there was automating customer services, onboarding and offboarding employees, predictive maintenance, cyber security, and assistance with coding.
The latter has been covered in other recent Computing research: Generative AI: What does it mean for software development?
As well as using off-the-shelf chat bots, several organisations are actively experimenting with their own AI/ML models, using AI on their internal data to drive automation and insight.
The majority of respondents said they expect AI to have a significant impact on their business in the next two or three years. More than half predicted that AI would bring gains in productivity. The possibilities here are almost endless, from automating routine communications to assisting decision-making, to streamlining supply chains, and all the cases mentioned above. Almost as many respondents (45%) said AI will improve customer service, and security was the other big topic.
Spending severed on servers and services
Companies are spending more on end user devices. The pandemic saw major supply-side issues with laptops, and prices increased with the supply shortages.
Meanwhile, spend on servers seems to be falling, likely displaced by cloud.
On average, respondents were spending less on training outsourcing and consultancy too. Some of these support services may be seen as a nice-to-have when resources are squeezed.
Open to open source?
Almost all software contains open source code, but actively choosing to use open source software as a policy and/or contribute to open source code over proprietary alternatives remains a minority play.
Twenty-eight per cent of respondents said their organisation has a policy to use or contribute to open source software, versus 67% who said they do not.
Using open source software can be a valid way to save money on expensive licencing, but at the business level the most common driver for its use is obtaining functionality unavailable in proprietary offerings, which may mean contributing to the code base.
Contributors to open source were disproportionately in the business & professional services, education and (unsurprisingly) software sectors. The majority of those using and/or contributing to open source software said they would continue to do more of both in the future, although a handful said they would turn to proprietary solutions when they can deliver the required functionality.
"We use open source software extensively, and staff are welcome to submit improvements upstream," said an IT director at a university, while another in a higher education facility spoke of its importance in HPC and AI research.
"It's the way of the future," said an IT manager in a tech consultancy.
The numbers, however, show there's a way to go before that future arrives.
Inflation, interest rates and shortages
While largely resolved, disruptions in the global semiconductor supply chain continue to affect 17% of respondents. "Everything has a longer lead time" was a common refrain.
"Mainly from Nvidia because of AI demand" (Education)
"The supply (and price!) of end user devices such as laptops" (Media)
"End user devices are on a long wait" (Public sector)
"Toner cartridges were being shipped without microchips, print audit software was not monitoring toner levels" (Business & professional services)
"Longer lead times on computing equipment, switches and printers" (Distribution & transport)
High inflation and elevated interest rates had caused plans to be delayed for 19%.
"Increased costs have put a strain on existing budget - some projects paused as a result" (Distribution & transport)
"Migration to other platforms has been put on hold due to the cost difference" (Business & professional services)
"We are trying currently to break even rather than lose financial assets" (Technology)
Optimistic outlook
As with budgets, more respondents were optimistic about the coming months than the other way around. They felt that the dark days of the pandemic are now behind us, inflation seems to have peaked, order books are filling up, and new work arrangements have stabilised.
Why do you feel more optimistic about your business in the coming year?
"If we harvest the true benefits of AI/ML into our managed services, we will grow the business" (Telecoms)
"We have a number of projects nearing completion and our business is in a healthy state" (Media)
"Inflation seems to have peaked and will hopefully reduce; variations in vendor costs are reducing; bad debt is rather less than expected" (Business & professional services)
"We have recruited staff to develop our support provision" (Education)
"Order book is full, having to recruit new staff" (Technology)
However, this feeling was not univeral. Respondents from public sector, media and business and professional services were the least optimistic about the future, citing challenging economic conditions, cutbacks and the difficulty in raising fees to counter inflation.
Why do you feel less optimistic about your business in the coming year?
"Business conditions are more challenging" (Business & professional services)
"In our sector the current economic climate is impacting customer spend" (Media)
"Funding problems; hardware reaching EOL; paradigm shifts (cloud, AI) which are insufficiently funded" (Education)
"Continual cuts to budgets and staff" (Public sector)
Summing up
Despite continued uncertainty on many fronts, UK IT budgets have shown remarkable resilience over the past year. While some organisations have had to trim expenditures, most IT leaders report stable or growing spend.
Funds are being invested in cloud migrations, cybersecurity, automation, and AI/ML - technologies viewed as essential in an increasingly uncertain world - and also the salaries of those tasked with implementing them.
IT departments know their role is more crucial than ever to drive efficiency, enable remote work and support data-driven innovation. Although skills shortages, inflation and supply chain woes continue to cause headaches, with some sectors seeing real-term cuts, most IT leaders remain cautiously optimistic about the coming year. Their skills only grow more vital as businesses push through the turbulence. For UK organisations hoping to stay competitive and effective, keeping IT priorities funded is imperative.
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