With 2019 coming to a rapid close, IT executives are turning attention to the year ahead and balancing spending priorities.
Companies are allocating money to IT, with budgets accounting for 9.1% of revenue in North America, according to a survey from Flexera released last week. The software and IT cost management solutions provider surveyed 303 IT executives and decision-makers from companies with at least 2,000 employees.
The technology industry is dedicating the largest percent of revenue to IT spend, followed by financial services.
More than half of respondents expect budgets to increase in 2020, with IT controlling three-quarters of IT spend — the rest falls to business units, according to Flexera.
Spending trends coalesce with a shift in how companies manage technology budgets, transitioning from CapEx to OpEx in the "as a Service" era. The pivot is not seamless, however.
Increasing cloud spend comes with add-ons which require companies to prioritize and manage digital technology.
"With cloud you continually buy," Kim Weins, VP of cloud strategy at Flexera, told CIO Dive. Purchasing decisions are made by someone who is working with the technology, not governed by a traditional process where everything is pre-approved.
Unnecessary spend lurks in IT, challenged by cost visibility. Flexera estimates at least 30% of technology spend is wasted. The principal problem is too many manual processes and not enough attention paid to avoiding waste.
Businesses can't manage a manual spend, according to Weins. Organizations have to move to an automated support environment to make it work.
Below the surface of transitioning costs
Underlying forward-looking technology adoption is a pivot toward cloud solutions, including software, infrastructure and platform as a service offerings.
On-premise software accounts for 22% of technology budgets, while 25% are dedicated to SaaS, IaaS and PaaS, according to Flexera. But a more stark shift is coming. More than half of companies plan to decrease on premise-software spend, while 80% expect to boost SaaS and public cloud investments.
The coming investment arises from companies' top-three technology initiatives, according to Flexera: digital transformation, cybersecurity and cloud adoption.
While on-premise workloads dominate technology stacks, 32% of workloads are in the cloud, including IaaS, PaaS and SaaS, according to Flexera. Another 12% of workloads are set to move to the cloud within 12 months, pulling the number of cloud-based workloads closer to 50%.
Transitioning to the cloud is where additional costs can creep in. "You've got to anticipate the cost of add-ons to different subscription services," said Thomas Phelps, VP of corporate strategy and CIO at enterprise content management company Laserfiche, in an interview with CIO Dive.
Phelps joined Laserfiche in 2014 as the company was pivoting toward a cloud-first strategy. In the last year, the company migrated to a different CRM platform and during contract negotiations, some vendors were silent about encryption of data at rest.
When you dive into it a bit further, there is typically an add-on cost for it, an additional 15-30% of the subscription price, according to Phelps.
"That's something that IT leaders need to anticipate," said Phelps. While IT leaders can begin a conversation with a SaaS vendor about a particular package, for an incremental cost businesses can upgrade to a higher tier enterprise package offering more services and capabilities for a fraction of the price.