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Technology spending steadies with 2024 IT budgets flat or up

Cybersecurity and cloud top the list of 2024's tech investment drivers, according to an Enterprise Strategy Group survey. But upstart GenAI also now influences spending.

Enterprise technology spending is stabilizing in 2024, with survey data showing that most business and technology leaders are forecasting flat or increased IT budgets and relatively few expect funding declines.

A report published in February by TechTarget's Enterprise Strategy Group depicts a market poised between the lingering economic uncertainty of the present and a future that could see an AI-fueled expansion. The "2024 Technology Spending Intentions Survey" found 49% of the 938 global IT and business decision-makers polled late last year expect to keep technology budgets even with 2023 levels, while 47% said spending would increase.

Compared with the results of a similar survey for 2023, more organizations expect no budget growth and fewer anticipate increased spending. But the 5% of respondents that believe their technology budgets will shrink this year is less than half as many as the 12% that predicted funding declines in 2023.

The research suggested that the enterprises most likely to actively spend on technology this year will be those most heavily engaged in digital transformation programs. According to the survey, 53% of the respondents with both in-progress digital transformation projects and established plans for initiatives were looking to boost technology spending in 2024, while 48% with mature initiatives were. On the other hand, only 37% of the respondents that are just starting to plan transformation efforts and 34% of those with no plans expect to increase IT spending this year.

"Organizations that are further along in the digital transformation journey will have more aggressive IT spending plans than their counterparts," said Christian Perry, principal director of sponsored and syndicated research at Enterprise Strategy Group. Overall, enterprises will focus on cybersecurity, generative AI (GenAI) and cloud, he noted.

Respondents were polled worldwide with 36% of the survey's participants in North America, 34% in EMEA, 25% in Asia-Pacific and 5% in Latin America.

Graphic showing technology spending trends.
The overwhelming majority of respondents are keeping budgets level with last year or increasing spending.

Tech budgets, from startups to storied franchises

Among the budget gainers, 17% expect a spending increase of 10% or more this year, the survey noted.

BriteCo, a jewelry insurance company based in Evanston, Ill., is an example. The insurer, which was founded in 2017 and raised $9 million in Series A funding in 2022, is in high-growth mode, said CEO Dustin Lemick. He said the company's technology budget will be up about 25% year over year in 2024.

"We are really trying to improve customer experience and trying to leverage technology to do that," Lemick said.

BriteCo's direct-to-consumer insurance business is investing in generative AI to improve customer experience (CX). The company used ChatGPT to build a customer service chatbot, which it trained on its own data. The chatbot, dubbed Emma, accounts for half of the company's customer service transactions coming through chat -- human customer service agents handle chat inquires as well. BriteCo is also working on a generative AI copilot tool to support its customer service and underwriting personnel.

ERP leads supply chain apps

ERP is the top supply chain software spending priority for enterprise customers in 2024 -- and by quite some margin.

Nearly 60% of the decision-makers Enterprise Strategy Group polled cited ERP, with supply chain management and purchasing/procurement tied for a distant second at 34% each.

The ERP focus stems from vendors encouraging users to replace traditional software licenses with SaaS offerings, said Eric Helmer, CTO at Rimini Street, a third-party software support company based in Las Vegas. Customers face "high vendor pressure to abandon on-premises workloads, and ownership of software, and reimplement everything in their SaaS subscription-based model."

He also cited looming end-of-support deadlines as fueling ERP spending. SAP users, for example, have a 2027 deadline to migrate from legacy SAP ERP systems to the vendor's S/4HANA platform.

Meanwhile, the Boston Celtics, a more mature organization at 78 years old, are using cloud services to keep their technology spending at a steady state. The NBA basketball team has been on the AWS cloud for about 10 years and has continually tweaked the environment to trim expenses. In one case, the Celtics migrated from Amazon EC2 to the AWS Fargate serverless compute engine, a move that resulted in a 50% cost reduction. Fargate lets customers run containers via Amazon Elastic Container Service without having to manage the underlying infrastructure.

The actual cost savings are a bit nuanced, however. The organization's coders and data analysts find ways to expand their work to fill the budget available to complete it -- a variation on Parkinson's Law.

"You don't realize some of those cost reductions, because as soon as the development group and the mathematician group realize that you are able to do everything for 50% less, they figure out 50% more things to do," said Celtics CTO Jay Wessland.

As a result, IT costs have been stable for several years. "They really don't change in actual dollars," Wessland said during a recent webinar with managed services company Mission Cloud. "We do more and more at the same cost."

Graphic showing top technology initiatives in 2024.
Cybersecurity and cloud are the leading technology initiatives, but GenAI has broken into the top 10.

Cybersecurity leads spending drivers

The Enterprise Strategy Group survey identified cybersecurity as the No. 1 investment driver, a result consistent with previous polls.

Specifically, cybersecurity topped the list of technology initiatives that have significantly grown in importance to the future of organizations over the past two years. Fifty-seven percent of the survey respondents cited it. In addition, cybersecurity emerged as the technology most likely to receive a spending boost in 2024, according to the survey. It found 68% of respondents planned to increase their cyber investments, while 30% expected flat cybersecurity budgets and just 2% predicted a decrease.

"Cybersecurity is the top spending initiative and it shows the biggest plans for increases in spending," said Melinda Marks, cybersecurity practice director at Enterprise Strategy Group. "We see this because security is important for any technology adoption or investment."

Cybersecurity is the top spending initiative and it shows the biggest plans for increases in spending.
Melinda MarksCybersecurity practice director at Enterprise Strategy Group

Indeed, cybersecurity spending is embedded in broader IT projects and emerging technology deployments in addition to standalone measures.

The latest phase of the Boston Celtics' cloud rollout highlights security. The organization is separating its various cloud workloads into separate AWS accounts. Those workloads include basketball and business analytics as well as general IT infrastructure such as Active Directory.

Wessland said the organization previously maintained segmentation through subnets and virtual private clouds, but its workloads were all contained in a single account.

"We had it all sort of commingled," Wessland said. "We started about six months ago to divide that up into multiple accounts to keep these things very separate from a security standpoint."

Enterprises are also baking security into their generative AI projects to address inadvertent data leakage, among other GenAI vulnerabilities. Home furnishings retailer IKEA, for instance, made compliance with data privacy and security polices a top design consideration for its ChatGPT-based shopping tool, IKEA GPT Assistant.

The tool is designed to prevent personally identifiable information from being shared with ChatGPT developer OpenAI, in addition to other capabilities, said Francesco Marzoni, chief data and analytics officer at Ingka Group, the largest IKEA retail franchise.

Enterprises bolstering cybersecurity also seem inclined to ask for outside help. The survey respondents cited cybersecurity as the technology investment most likely to involve third-party service providers.

A Kaseya survey, published in March, reinforces this finding. Nearly three-quarters of the 1,000 managed service providers (MSPs) responding to the software company's 2024 "Global MSP Benchmark Survey" reported an increase in security revenue.

Graphic showing top AI spending areas.
Generative AI is the top-ranked AI technology in respondents' spending plans.

Enterprises back GenAI, CX use cases

Overall, enterprises have quickly elevated generative AI as an investment priority. The technology emerged in late 2022, so was not a factor in TechTarget's previous spending surveys. In this year's survey, conducted from September-November 2023, generative AI entered the charts tied at No. 5 in the ranking of technologies respondents viewed as increasing in organizational importance. And GenAI was the top-ranked technology for near-term investment in the data science, AI and machine learning category. Nearly half of the respondents cited it in that case.

HR and payroll services company ADP provides an example of how generative AI has quickly become central to enterprise tech strategies. ADP earlier this year launched ADP Assist, a generative AI tool for human capital management practitioners and other users. The company is now looking to expand its use of this technology.

"Everybody at ADP is working toward generative AI interventions that we can provide in our products," said Naomi Lariviere, chief product owner and vice president of product management and shared services at ADP.

The goal is to boost HR employees' efficiency in their everyday work activities. ADP has spent the last 18 months examining aspects of clients' HR tasks, such as posting job requisitions and onboarding employees, to find roles for generative AI, Lariviere noted. The company has started embedding ADP Assist in its products and platforms, which include Benefits, its Wisely digital pay offering, ADP Workforce Now and ADP Next Gen HCM.

While task efficiency is a key generative AI benefit, CX is also closely associated with the technology. The decision-makers Enterprise Strategy Group polled identified CX as the second-highest priority for significant GenAI spending over the next 12 months. Only cybersecurity was rated higher.

In addition, generative AI, CRM and chatbots are the top three customer-centric business applications organizations plan to invest in this year, according to the survey.

Early results from BriteCo's Emma rollout, spanning the generative AI, CX and chatbot categories, suggested prioritizing such investments could yield promising returns.

The virtual assistant has reduced abandonment rates on chat inquiries to the 2% to 2.5% range, Lemick said. The abandonment rate reflects the portion of customers who end a chat session before getting their questions addressed. A low abandonment rate can translate into higher sales, he said. Emma is designed to answer questions on the scope of insurance coverage and the policy application process.

The chatbot has also helped BriteCo trim expenses. Lemick noted that the company now hires fewer customer service representatives with Emma handling more of the chat volume.

Graphic showing application deployment preferences.
Survey results point to a more balanced approach regarding cloud vs. on-premises app deployment.

Cloud, data management among investment priorities

Survey respondents cited other spending priorities beyond their perennial cybersecurity needs and emerging generative AI use cases.

Cloud followed cybersecurity on the list of top technology initiatives, with 42% of respondents identifying it as having increased importance. The survey also suggested enterprises are taking a more nuanced approach to their use of cloud. While 35% of the respondents said their organization takes a cloud-first approach, 37% said they give equal weight to public cloud and on-premises deployments.

"Over the past several years we've seen the percentage of organizations that identify as cloud-first start to kind of plateau or level off," said Scott Sinclair, practice director for infrastructure, cloud and DevOps at Enterprise Strategy Group. "A lot of that is just driven by this increased focus on, essentially, just letting the application decide."

Sinclair pointed to a couple of trends that favor a more balanced cloud strategy. First, as organizations gain more experience in the cloud, they get a better sense of which applications perform well in the cloud versus those for which cloud migration is difficult to justify, he said. Second, cloud cost challenges have increased the use of cloud cost management tools, which emphasize preplanning and cause organizations to evaluate applications before committing to migration, he added.

Graphic showing data governance's status in data protection, DataOps.
Data governance ranked highly in the data protection and DataOps categories.

Data management and data governance followed cloud as the third-ranked technology initiative in the spending intentions survey. As for specific data management technologies, 29% of respondents cited data lakes and lakehouses as a spending priority, making it the No. 1 technology in the database and big data category, followed by data warehouses at 26%. Cloud-based data lakes and relational databases tied for third on the list of such investments, both chosen by 25% of the decision-makers polled.

Inrix, a transportation data and analytics company based in Kirkland, Wash., is building upon its 50-petabyte data lake. The company last year launched Compass, a product that integrates Amazon Bedrock with Inrix's cloud data lake. Bedrock provides foundation models that let customers build generative AI applications on the AWS platform.

The combination of Inrix's data lake -- which stores data collected from connected vehicles and other sources -- with large language models provides a broader understanding of events happening on road networks, said Matt Johnson, vice president of information and operations management at Inrix. For example, operators in a public sector transformation management center can learn why, not just where, traffic snarls are occurring.

"The models actually determine the causality of those events," Johnson said. "We're starting to see the beginning of different ways to leverage the data to deliver insights to our customers that simply weren't possible before."

Data governance, risk and compliance, meanwhile, emerged as the leading data protection technology for 2024 spending in the survey, edging disaster recovery by 41% of respondents to 40%.

But the survey results also highlighted data governance's role beyond security. Respondents, for instance, identified data governance tools as the most significant investment they plan to make this year in data preparation and their DataOps platforms. Such platforms provide the means for building distributed data architectures.

Data governance promotes data reuse as well, an important consideration as enterprises tap existing data sets to train generative AI models.

"There is this movement to really use data and reuse data -- data is an asset," said Christophe Bertrand, practice director for data management and analytics at Enterprise Strategy Group. "You can't get good reuse of data without very strong data governance."

John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.

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