Gartner IT spending forecast cites higher service prices

CIOs can expect a rate hike as service providers offer their employees more competitive salaries amid talent shortages, higher attrition and soaring utilization rates.

CIOs can expect their organizations to pay more for IT services this year and will likely need to expand their partner rosters to obtain the skills they need.

A confluence of factors is fueling higher prices. Updated IT spending data from Gartner said technology services providers are boosting their prices amid high demand from enterprise IT departments struggling to hire in-house talent. Meanwhile, services providers, facing their own IT skills deficits and higher attrition rates, are offering more competitive salaries -- and passing those costs to clients.

John-David LovelockJohn-David Lovelock

CIOs must accept the reality of higher prices since they need service providers to fill their skills gaps, from lower-level managed services to high-end strategic consulting, noted John-David Lovelock, research vice president at Gartner.

"CIOs are going to lose this battle," he said of the talent struggle. "They don't have the resources and they don't have the cash and they don't have the cachet to attract and retain top-skilled employees any longer."

The skills gap ranks among many forces buffeting tech managers in what Lovelock described as one of the noisiest years ever for CIOs. Other factors complicating IT in 2022 include geopolitical disruption, inflation, currency fluctuations and supply chain issues, he noted. Amid the turbulence, Gartner on Wednesday lowered its worldwide IT spending projection for 2022 to $4.4 trillion from its January forecast of $4.5 trillion. The revised spending forecast represents a growth rate of 4% versus 5.1% in the earlier projection.

The market researcher, however, raised its projected IT spending growth rate for 2023 to 5.5% from 5% in its previous assessment.

Expanding partner rosters

Lovelock said he couldn't pinpoint an average service provider cost increase, because the price CIOs end up paying will depend on how well they negotiate. Other variables include how long a service provider's rates are locked into a contract and whether the CIO's partnership with a service provider is generative, he added. In a generative partnership, customers and vendors co-own and co-earn on an asset they develop together, according to Gartner. That approach is less susceptible to rate hikes than a traditional buy-sell relationship.

[CIOs] don't have the resources and they don't have the cash and they don't have the cachet to attract and retain top-skilled employees any longer.
John-David LovelockResearch vice president, Gartner

But another trend confronting CIOs, also related to the labor shortage, is the need to find more service provider resources. In 2020, the pandemic caused enterprises to narrow the number of vendors they worked with -- for health and business reasons. As for the latter, CIOs wanted to move rapidly on digital initiatives -- projects supporting remote workers, for instance -- and limited the number of vendors they evaluated.

Lovelock said that pattern began to change in 2021 as the labor squeeze intensified. As shortlisted service providers ran out of capacity to take on projects, CIOs had to look elsewhere and began issuing more requests for information and requests for proposals, he noted. The trend toward dealing with more companies will persist this year as some service providers' utilization rates have climbed to the mid-90s, he added.

Minding the talent gap

Lovelock suggested a threefold plan for working through IT talent issues. He said CIOs can turn to MSPs for commodity tasks such as LAN and WAN management, an inexpensive approach that frees up an enterprise's internal IT staff. Tech managers, meanwhile, can tap service providers for mid-level activities such as running legacy applications and exploring cloud migration opportunities. This middle ground offers the possibility of knowledge sharing between contractors and IT staff, creating opportunities outside of limited training budgets to reskill employees, Lovelock noted.

At the high end, CIOs "just have to get used to going to consultancies," Lovelock said. He cited a lack of skill sets among enterprises to deal with strategic issues around cloud and other technologies.

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