Why the drop in global IT spending isn't disastrous by any means

Global IT's growing pains

Global spending on IT is down. Not by much – just 1.3% according to forecasts by analysts at Gartner – but it's nevertheless set to shrink from the 2014 figure of $3.66 trillion (around £2.35 trillion, AU$4.5 trillion). It's also a bit of a change from the 2.4% growth forecast in Gartner's update for the last quarter. So what's going on?

"This is not a crash, even if it looks like one," says John-David Lovelock, research VP at Gartner, who calls the figures an "illusion". He explains: "The recent rapid rise in the value of the US dollar against most currencies has put a currency shock into the global IT market." Lovelock insists that by taking out the impact of exchange rate movements, the sector is actually growing by 3.1%.

So everything is okay? Not quite. "This illusion masks a bigger issue that has real implications," says Lovelock. "Every product or service that has a US dollar-based component must have those costs covered at the lower exchange rate … the simple implication is that there will be price rises."

Dr Aleksej Heinze

Dr Aleksej Heinze, co-director of Salford Business School's Centre for Digital Business

What's going on with IT spending?

"Things are actually ticking over as they should be, and as they're using just one measurement, it may not show the whole picture," says Dr Aleksej Heinze, co-director of the Centre for Digital Business at Salford Business School. "The problem could be artificial in the first place – how quickly will the dollar devalue and Euro increase in value? When figures are given on a global scale, it's difficult to unpick how they've been arrived at."

However, there are wider forces at work in this complex market. There's an economic slowdown in many countries – such as China – which doesn't help. "The Gartner Report seems to suggest that investment in enterprise-level software is growing, so companies are investing in delivering better ROI on areas such as business process automation," adds Heinze. "This shows maturity in the market, and investment in the right areas."

The stakes are high – IT is everywhere, in every organisation, but in total IT is bigger than the entire banking industry according to Experts Exchange, which keeps a running total of global IT spending.

"A large investment bank once said it is an IT company delivering investment banking," says Jon Wrennall, Chief Technology Officer at Fujitsu UK & Ireland. "With this in mind, there is a lot of pressure on the IT department to understand the wider business functions."

Jon Wrennall

Jon Wrennall, Chief Technology Officer at Fujitsu UK and Ireland

What are the main budget challenges facing CIOs?

The major change in global IT budgets is the increased spending on technology directly from business unit budgets, thinks Andrew Horne, MD at business advisory firm CEB. "Last year, for every £1 in the CIO's budgets, another 47p was spent directly by business leaders on technology – up from 40p in 2012 – while on average, companies reallocate 15% of their IT budgets during the financial year," he says. "In some of the most agile and responsive companies this number rises to 30%."

Horne thinks there are two main budget challenges facing CIOs. The first is how to make budgets flexible to take advantage of new opportunities while slashing spending in low-value areas. "A big part of this is continuing to make progress against reducing spending on maintaining legacy systems, as this money is effectively stuck and is hard to reallocate," says Horne.

Andrew Horne

Andrew Horne, managing director at business advisory firm CEB

The second challenge is how to ensure that all money spent on technology is aligned to company priorities, regardless of which department's budget it sits in. "This requires IT to act as a consultant and broker to the rest of the business, providing advice on technology spending and highlighting opportunities," says Horne.

CEB's own IT budget benchmark data for 2015 actually showed a 3.3% increase in IT budgets from 2014 – the highest projected increase for five years – with a trend to CIOs reallocating funds away from maintenance spending to high-value projects like cloud services.