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After years of prioritizing digital transformation and focusing on innovation, many CIOs are reporting that their No. 1 goal now is supporting operational efficiency.

CIO.com’s 2023 State of the CIO report, its 22nd such annual survey, showed that more CIOs today are seeing improved operational efficiency as the top imperative.

Some 45% of respondents listed “increasing operational efficiency” as a business need driving their IT agenda, propelling it to the top spot on the list of business initiatives driving IT budgets today, besting other critical business needs such as increasing cybersecurity protections, furthering transformation, and even improving profitability.

But IT leaders say there a host of other business needs shaping IT initiatives today that are not only nearly as important as driving operational efficiency but are frequently supportive of it.

That’s what Matt Mead, CTO of the technology modernization firm SPR, sees in the market.

“Driving efficiency is very much on everyone’s minds,” he says, while quickly adding that CIOs are investing in technologies that help them address multiple business needs. He cites automation as a case in point, noting that the technology can transform processes as well as improve customer and employee experiences, all while creating more efficient operations. Cloud migrations and data analytics projects do much the same, Mead says.

Top 15 business needs driving IT spend

The State of the CIO survey asked 837 IT leaders and 201 line-of-business (LOB) participants a range of questions regarding their current and future IT strategies, with 56% reporting that they expected their overall IT budgets to increase this year. In terms of business initiatives driving their IT spending this year, the top 15 enterprise needs are:

Increasing operational efficiency: 45%

Increasing cybersecurity protections: 44%

Transforming existing business processes: 38%

Improving the customer experience: 36%

Improving profitability: 27%

Increasing employee productivity: 25%

New product development: 22%

Increasing topline revenue for the business: 20%

Developing new digital revenue streams: 19%

Improving/optimizing the employee experience: 19%

Enhancing hybrid work technologies: 18%

Improving talent acquisition/retention: 17%

Meeting compliance requirements: 16%

Monetizing company data: 14%

Adhering to environmental, social and governance (ESG) standards: 11%

The top portion of this year’s list varies from last year’s findings in notable ways, with increasing cybersecurity protections having been the top business need driving IT budgets in 2022, followed by increasing operational efficiency, improving customer experience, transforming existing business processes, improving employee productivity, and improving profitability.

The shifts suggest that a portion of enterprises are moving on somewhat from last year’s protection posture in favor of revamping business processes and increasing efficiencies, and that the pandemic’s lens on employee productivity is giving way to an eye on profitability as economic headwinds rise.

Business pressures drive IT

Multiple CIOs across various industries say their IT agendas line up with the State of the CIO Report findings.

Woody Groton, the CIO for Draper, a nonprofit research and development organization, until April 2023, says the IT strategy he had put in place is a testament to that.

“Operational efficiency and profitability and productivity all tie into the business pressures we’re all seeing,” he says, adding CIOs continue to hear calls for IT to help reduce costs and drive efficiencies. “There’s a renewed focus on all this; that’s something I’m experiencing.”

But Groton says the pressure for operational efficiency isn’t about identifying technologies that can help slash costs — as had been the case in the past. Instead, the imperative is to determine how IT can improve operational efficiency while also meeting other key business needs, such as transforming processes and improving customer and employee experiences, he says.

The IT plans Gorton had implemented for 2023 at Draper called for moving the company from an on-prem ERP system to a software-as-a-service option; Groton says such a move enables business units to update existing business processes, with the expectation that the company will enjoy both transformation and improved operational efficiency as a result.

Groton’s IT strategy called for moving other systems to the cloud to gain efficiencies, spur additional process transformations, and boost the company’s cybersecurity posture — all top business priorities at Draper that correspond to the CIO.com research findings.

Automation efforts, such as robotic process automation (RPA), and implementing software with built-in AI capabilities are other key initiatives, given their ability to shift workers away from mundane time-consuming tasks to higher-value activities, thereby generating further efficiencies and improved user experiences, Groton says.

As Draper CIO, Groton also focused on meeting the company’s push for maturing its cybersecurity posture. To that end, Draper adopted a zero-trust security model, with IT implementing various technologies, such as network detection and response (NDR) software to support that defense-in-depth strategy.

Draper’s continuing drive to maximize its use of data also meant more investments in business intelligence and analytics tools, Groton says, while its ongoing hybrid work environment necessitates ongoing investments in technologies that support and improve both worker experience and productivity.

Max Horne, CIO and senior vice president of Colonial Savings in Texas, has a similar list of business objectives to fulfill. He specifically listed operational efficiency, cybersecurity, and “projects that can help us bring more business in” as top drivers at Colonial.

Maturing the bank’s data and analytics program and improving customer experience are also top business objectives today, Horne says, noting, however, that these items are perennial priorities, with their rankings on the priority list changing mainly based on fluctuations in economic and business conditions.

“I find my project portfolio has always had those things in it,” Horne says.

Addressing multiple business at once

Other research shows a similar list of business imperatives shaping the IT agenda this year.

The IT Priorities: 2023 report, conducted by research and consulting firm Frost & Sullivan for tech company GoTo, surveyed 1,000 IT decision-makers and found that growing revenue was the No. 1 business objective for the year and that 83% of surveyed organizations intended to achieve that growth by acquiring more customers. Improving operational efficiencies was second on the list of business objectives, followed by reducing costs and increasing customer satisfaction.

Meanwhile, Snow Software’s 2023 IT Priorities Report found that reducing IT costs topped the list, followed by reducing security risks, delivering digital transformation, adopting new technologies to improve day-to-day operations, and driving company growth.

CIOs say they’re working to collectively address those multiple and often overlapping needs.

That’s the case for James Pennington, vice president, CIO, and HIPAA security officer at Southwell, a nonprofit healthcare system in Georgia.

He lists the business need to accelerate growth, strengthen the workforce, and reduce expenses as his top drivers for IT spending. He also cites the Southwell’s commitment to safety and quality as a top business need shaping IT today.

“As with most of the healthcare provider market, we are struggling to rebound to pre-pandemic volumes and revenue. Most of our technology initiatives are based on tangible ROI and/or maximization of our legacy investments. As such, our strategy centers around innovative solutions leveraging key strategic vendors in order to capitalize value,” he says.

Micha Albertijn, CIO of Meat&More, a vertically integrated Belgium-based company that incorporates food production and processing as well as distribution and retail activities, says he, too, is working to meet multiple business needs of near equal importance.

First, Meat&More is pushing for operational excellence. “The more efficient and effective our processes are, the better our company is running,” Albertijn says. “This can be translated to how we offer digital solutions to our employees and customers and vendors.”

The other two main drivers are becoming more customer-centric and containing spending, which means benchmarking activities from a financial point of view and working to “right size” in terms of budget, he says.

IT is working on various initiatives to support those business imperatives, with several IT projects delivering value in all three areas, Albertijn says, pointing to his team’s work with the sales and marketing department on data-driven know-your-customer projects, which help Meat&More be more customer-centric while supporting top-line growth and efficient use of marketing and sales spend.

“A topic that was already high on our agenda before my arrival but today is even far higher on the agenda is cybersecurity,” Albertijn adds. “We feel due to circumstances and also due to recent events that cybersecurity is asking for far more attention.”

Consequently, he and his IT team are spending more resources in that area, with money going to improving the team’s security skills and implementing next-generation security tools such as those that use AI to deliver more effective threat detection and response.

Focusing on the enterprise mission

CIOs say such intense focus on business needs — and aligning IT spending and the overall IT strategy to them — has become critical for enterprise success.

Bryan Kennedy, director of museum technology and digital operations at the Science Museum of Minnesota, speaks to that point, saying that the museum’s executive team is focused on “using technology to drive forward its mission.”

For Kennedy, that means investing in technologies such as automation and AI-based tools to streamline operations with an eye toward delivering efficiencies — echoing a familiar refrain.

It also means moving more workloads to the cloud, which is both helping the museum to transform processes while also cutting costs. And it means investing in data and analytics to help the museum become more data-driven — with the goal of using those insights to understand where it can grow and how it can move further into the digital space.

At the same time, Kennedy — like his CIO colleagues in other industries — says he has seen his business-side colleagues become more committed to maturing the museum’s cybersecurity posture. Kennedy has invested in various security technologies — including a password management tool and cloud access security brokers — as he moves the institute to a zero-trust security model.

Kennedy’s priorities mirror other findings in the 2023 State of the CIO survey, which noted that CIOs this year anticipate their involvement to increase in cybersecurity (70%), data analysis (55%), data privacy (55%), AI/machine learning (55%), and customer experience (53%).

The study further found that most respondents (77%) believe the visibility of the CIO role will continue to be elevated within their organizations. Already, 38% of LOB respondents consider the CIO as a strategic advisor who proactively identifies business needs and opportunities with another 25% viewing the CIO as a consultant who is evaluating and advising on business needs and technology choices.

Budget, Budgeting, Business IT Alignment, IT Leadership, Technology Industry

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Faced with a long-running shortage of experienced professional developers, enterprise IT leaders have been exploring fresh ways of unlocking software development talent by training up non-IT staff and deploying tools that enable even business users to build or customize applications to suit their needs.

A broad spectrum of tools has arisen to facilitate software development in the enterprise, from no-code platforms like Bubble and low-code drag-and-drop tools, both stand-alone and integrated into enterprise applications, to intelligent tools that use machine learning to suggest lines of code to professional developers as they work.

Sales of all three of these categories of tools are growing. IDC forecasts that sales of no-code platforms will grow at an annual rate of 13.9% through 2026, with sales of low-code platforms growing at 14.1%, and those of intelligent developer technologies roaring ahead at 31.3%. This last category has received a boost as platform vendors explore the potential of generative AI models such as ChatGPT to create boilerplate application skeletons on which developers can hang their own business logic — or even turn human-readable requirements into machine-readable code.

The predictions about the future of software development are contained in IDC’s “Worldwide Low-Code, No-Code and Intelligent Developer Technologies Forecast, 2022-2026” report.

Its author, Michele Rosen, says the market for intelligent developer tools has become even more interesting since she finished writing it, now that some of those tools — such as Salesforce’s Einstein GPT or Microsoft’s GPT-based Copilot — have become public, although even before that, products such as OutSystems’ AI Mentor were offering similar functions.

Autocomplete on steroids

“Think of them as boilerplate writers, or autocomplete on steroids,” Rosen says. “They are tools used by someone who knows how to do this themselves, who may be using them to supplement their knowledge about a technology, library, or framework they haven’t worked with before, or to avoid looking up a few lines of code on Stack Overflow.”

Other uses for them might involve typing a few words as a prompt to generate the 20 lines of boilerplate needed to get a project started. “It’s really just a force multiplier, an accelerator,” she says.

Low-code and no-code platforms, on the other hand, typically adopt a drag-and-drop metaphor rather than a command-line interface, and that shows up in the way line-of-business developers think about the problems they’re solving too.

Users without a technical background will typically consider an app from the user interface inwards, she says: “That’s just the mentality that most people approach computing with.” If they are provided with UI components they can arrange to create the user interface, and then also components that can be assembled into business logic and even integrate with third party systems, then, in a sense, no-code and low-code development for the non-technical developer becomes a component based experience, she adds.

That componentization is key, says Andrew Peterson, CTO of executive search firm Riviera Partners, a longtime user of low-code development tools.

“One of the reasons I like low-code is because certain parts of your application are commoditized,” he says. “If I can get those things off-the-shelf, then I can focus on building the things that really add value, that are important to my particular business: the business logic, the innovation, the competitive advantages. Then I have a quicker time to market.”

But it’s not just about making life easier for the coders, whether they’re in the IT department or elsewhere. A good low-code or no-code platform will also help the CIO, says Rosen.

Governance guidelines

“If I had to tell someone looking to buy a no-code or a low-code tool what to look for to tell whether that vendor is serious about helping them build a culture of low-code/no-code development, it would be controls to help them set up governance around who can use the tools and what the tools can be used for,” says Rosen.

In some ways, governance around low-code tools is no different than for other software development tools, says Nick Mates, VP of operations and technology at Lendr, an online business-to-business loan platform. “We treat a low-code application as if it was a traditional code application,” he says. “It should follow the same governance lifecycles, from a business analyst’s desk to a developer’s desk to a QA desk to deployment.”

But with code-facilitating tools such as these, enterprises must also set up governance around which tools are best used for which use cases, Rosen says, noting that many organizations have multiple such tools in operation in house. Organizations with the most experience leveraging low-code and no-code tools have also set up centers of excellence (CoEs) to advise lines of business on which tool to use and when, she says. The CoEs also provide support by coding more complex interactions and integrations that low-code development tools or their users can’t handle, providing reusable components that line-of-business developers can access, and curating them in a marketplace or code repository.

One thing that plays into deciding the right tool for the job, and when a professional developer’s help is needed, is the level of interoperability that any given vendor has enabled in their platform, Rosen says. “Do they really just want you to bring all your data and logic to their platform, or are they allowing you to build apps that cross over multiple platforms?” she says. “That’s an important feature that customers can look for.”

The cost of keeping up

Should CIOs not yet all-in on the trend budget their software development tool spend to keep pace with IDC’s growth forecasts? “It’s not something where they need to make a major investment,” says Rosen. Setting up a CoE and making reusable software components available are affordable steps for most enterprises, she says. “Generally speaking, it’s not expensive to get started,” she adds. “What’s expensive is scale.”

Rather than worrying about whether their software spending is keeping pace with that of their competitors, Rosen advises CIOs to ask themselves, “What features are we not offering that we might be able to offer using low code, and that will be impactful for the business?” That approach could lead to cost savings since reusing componentized interfaces may mean a reduced need to hire expensive, expert programmers to build each application from scratch.

One key indicator on budgeting would be to weigh the cost per user for low-code platform licenses against the cost of hiring additional staff, Rosen says. For now, the difficulty of finding highly experienced professional developers is tilting that balance in favor of enabling line-of-business staff with low-code tools. Lower down the expertise scale, the decision whether to hire or to reskill existing staff is less clear, she says. At this level, CIOs need to take other advantages of deploying low-code platforms into account: not just develop a new digital business product, but perhaps also empower employees or improve retention.

“Once you know what you’re going for, you can look at the platforms with a different perspective,” Rosen says.

CIO, Developer, Development Tools, No Code and Low Code, Software Development

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Even though 90% of IT leaders in the UK expect an economic downturn, technology spending this year is set to grow at its third fastest rate in over 15 years, and most tech executives expect their budget to rise in 2023, according to the latest Digital Leadership report from talent and technology solutions firm Nash Squared (formerly Harvey Nash Group).

More than half (52%) of IT leaders in the UK polled for the report expect their technology budget to rise, and  56% of UK organisations expect to increase their technology headcount in 2023. Only approximately one in seven believe their budget will fall.

The Nash Squared Digital Leadership Report marks the 24th year the firm has polled leading CIOs, CTOs and CDOs, with this year’s study finding a surprising uptick in global, European and UK tech spending, as organisations accelerate digital transformation initiatives and adapt to hybrid working.

The report polled 1,783 digital leaders across 87 countries, including 746 in the UK, and discovered that improving operational efficiency, customer experience and developing new products and services are the top three priorities for digital leaders— markedly similar to last year’s findings.

It also suggested, however, that many of those same leaders are yet to feel the pinch from the recession and cost-of-living pressures.

“Economic headwinds are gathering and indicators are turning negative—but despite or even because of this, UK businesses know that investment in technology remains crucial. Both to maximise the efficiency of what they already have and to become more agile and responsive in highly unpredictable conditions, technology is the key enabler,” said Bev White, CEO of Nash Squared.

Tech spend is rising, as lines with business blur

Nash Squared’s report, pointedly, highlights that business and technology spending is becoming increasingly entwined, and how businesses define technology spending is getting hazy.

“What defines ‘technology spend’ is a point of debate,” according to the report, which added that the average IT budget for all respondents was a surprisingly high 7% of organisation revenue. “Most would agree spending on IT infrastructure is technology spend. Most would agree spending on Google adverts is not. But in the middle ground sit applications like customer systems, new technology products and apps. Is even defining it as ‘technology spend’ helpful?”

White believes that the growth in spending can be seen as a lasting impact from Covid-19, which gave CIOs the encouragement “to go faster and further”, in particular accelerating their investments in data and cybersecurity.

Alex Bazin, CTO at legal firm Lewis Silkin LLP, said that the Nash report’s headlines echo what he sees on a “day-to-day basis”, with investment rising at his company—a City firm focused on driving internal efficiencies. “We’ve got to keep the investment even, maybe even especially, through economic downturn,” he said.

Part of this investment, he said, can be attributed ton hybrid and remote working, with Lewis Silkin’s new office in Manchester representing a “significant investment in itself.”

Bazin—who said that ROI timeframes remain relatively unaffected, with most projects needing to deliver value within two years—does however note that the lines between IT and business spending are closing. This potentially muddies the waters, in terms of understanding where tech investment growth is coming from, and the impact it has on more traditional IT budgets.

“It’s hard to draw the line sometimes,” he said, giving the example of library services falling into his remit and budget, as subscription services fall into the realm of data and knowledge sharing. He adds that other industries, such as automotive manufacturing, have the additional complexity of IT/OT (operational technology) convergence and budgets falling between the cracks of technology, product and operations.

Tech executives in a variety of industries agree the lines between spending on IT and other segments of business are blurring. Nadine Thomson, Global CTO at Mediacom, gave one such example at the WPP-owned media agency.

“If you think about product, product doesn’t necessarily always sit in an IT or even in a CTO function,” shes says. “In my role, I kind of share product…with our chief product officer. So that’s one example of an area where you wouldn’t necessarily see it all on the IT line.”

Business-led tech is on the rise

There has also been a general increase in business-led technology, she notes, highlighting that this would not be cloud hosting or licensing costs, but rather areas like business analysis and product management.

“I wonder if some organisations are starting to think about how they’re accounting for technology more broadly,” she said, adding that budgets are now under ‘more pressure’ than two months ago.

In fact, a lot has changed recently. The Nash Squared survey was based on responses between 20 July and 10 October— chancellor Jeremy Hunt axed most of the so-called ‘mini budget’ seven days later, with now-former UK prime minister Liz Truss relinquishing her role after 10 days, on 20 October. The political tumult has added to general economic uncertainty.

For Scott Petty, the CDIO (chief digital information officer) at Vodafone, the financial uncertainty represents another opportunity for CIOs to drive change through crisis, even if investments are more acutely focused on projects which can save energy and drive operational efficiencies.

“So things like investments to save energy, and automation. Anything that can reduce power consumption, suddenly has an amazing business case,” he said on the sidelines of Gartner’s symposium in Barcelona, which ended Thursday. “So you’re seeing a wave of investments in those areas,” he said, pointing to data centre consolidation and cloud migration plans moving from “three-year plans to 18-month plans.”

“Will that continue? It really depends how long the downturn lasts, how long the headwinds are and how big the energy upside is,” Petty said.

AI and RPA cuts as projects get prioritised

Even though CIOs seemingly have yet to feel the impact of economic headwinds, some technologies have already been scaled back.  Although investment remains strong in cloud (67% of executives polled by Nash reported large-scale usage in the UK), companies are cutting back their investments in big data and RPA (robotic process automation).

“As the CIO, you want to make sure that you’re putting things on the board that show real value and help the business transform itself, grow and scale be more productive,” said Nash Squared’s White, adding that organisations are committing to bigger infrastructure projects rather than smaller, and more iterative AI projects which “start out small and then permeate.”

Mediacom’s Thomson expressed surprise at the relative fall from grace for RPA, suggesting that efficiency must be king in financially uncertain times.

“We know that talent is getting harder to get, so cutting back on anything that’s going to drive automation or RPA is a strange decision,” she said.

Lewis Silkin’s Bazin has a similar stance on AI, saying that this suite of technologies is “front and centre” to the company’s ambitions, with “nothing on pause.” In particular, he said the law firm is looking to AI for document discovery to help build legal cases and give advice to clients, as well as for contract analysis, contract automation and fact-checking on case law. “Anything that decouples effort from the equation makes a quick difference, and a rapid ROI,” he said.

Skills gap and diversity progress—but sustainability stalls

Elsewhere in Nash Squared’s report, there was concern over how cost-of-living pressures were having an impact on salary demands and thus recruitment, and frustration with the UK government’s inability to tackle the digital skills divide. But there was promising news for gender diversity: Approximately 28% of new hires are female, with the recruitment firm attributing the slight rise in the number of female leaders (up from 12% to 15% year-on-year) and new hires likely due at least in part to greater flexibility in the workplace.

Thomson, though encouraged by the findings, believes that building diverse teams is an ongoing journey. At Mediacom, she points to a “reasonably diverse” technology team, built over three years through partnerships with the likes of D&I organisation Tech Talent Charter, connections in the CIO-CTO world, and internal schemes like WPP ‘Visible Start’, which gives women an opportunity to come back after a career break. But she believes that developing the company culture, as well as active role modelling, is pivotal to get to a point where word-of-mouth drives diversity and employee retention.

“People recommend or bring in other people. And that’s actually really helpful, because they stick—and they stick because the culture is already there. You’re coming into a welcoming culture.”

Big data analysts, cybersecurity experts and technical architects were the top three job types sought in the UK, according to the report, but rising salaries were a concern, with almost two-thirds of UK leaders saying that the rising cost of living has made salary demands ‘unsustainable’.

Sustainability, as was the case last year, remains somewhat down on the CIO’s priority list. In the UK, while 43% of respondents think technology has a ‘big part to play’ in sustainability, only 22% are using technology to measure their carbon footprint to any great extent.

A fifth of digital leaders polled in the UK (20%) think sustainability had only a ‘negligible or no part to play in 2022’, leading Nash Squared to question if there’s a vacuum in leadership responsibility for sustainability. “We expected to see it playing a greater role than when we measured it last year when in fact it appears little has changed,” the report said. “Do digital leaders have their heads firmly in the sand or is the board not focusing them on this?”

Bazin notes that IT concerns about sustainability could differ widely by sector—a logistics company may, for instance, see a bigger environmental impact from haulage by air or sea than from IT—but believes an altogether bigger challenge is focusing on goals for the year ahead. In the study, most UK leaders cited concerns about a lack of focus on digital innovation (21%), followed by under-resourcing (18%) and prioritising ideas (10%).

“IT has been so busy in innovating core IT for the pandemic, and adapting for the hybrid workplace. But it is really important that business owns business innovation, and IT owns its part of that,” Bazin said, adding that getting the right team and process structures in place is at the top of his agenda.

Budgeting, IT Strategy

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Even as enterprises attempt to tackle economic headwinds with budget cutbacks, a research report from market research firm Gartner showed that end-user public cloud spending is expected to grow in 2023.

The report, which covers categories such as infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and software-as-a-service (SaaS) among other cloud services, showed that public cloud spending is slated to reach a total of $591.80 billion in 2023, a 20.7% increase from $490.30 billion in 2022.

The 20.7% growth in spending is higher than the 18.8% growth recorded in 2022.  

“Current inflationary pressures and macroeconomic conditions are having a push and pull effect on cloud spending. Cloud computing will continue to be a bastion of safety and innovation, supporting growth during uncertain times due to its agile, elastic and scalable nature,” said Sid Nag, a vice president and analyst at Gartner.

Infrastructure-as-a-service to outpace other services in growth

Out of all the public cloud services, IaaS is expected to see the highest growth in 2023 with spending expected to reach $150.25 billion, an increase of 29.8% from $115.74 billion in 2022.

The reason for the growth, according to Gartner, is continued migration of enterprises to the cloud.

“IaaS will naturally continue to grow as businesses accelerate IT modernization initiatives to minimize risk and optimize costs,” Nag said, adding that moving operations to the cloud also reduces capital expenditures by extending cash outlays over a subscription term.

This benefit will play a vital role during times of economic uncertainty as cash will be critical to maintaining operations for an enterprise, the analyst said.

PaaS and SaaS to grow despite challenges

SaaS is expected to grow but might see the most impact from an economic downturn due to staffing challenges and enterprises’ focus on margin protection because of inflation, according to Gartner.

“Higher-wage and more skilled staff are required to develop modern SaaS applications, so organizations will be challenged as hiring is reduced to control costs,” said Nag.

SaaS spending is expected to reach $195.20 billion in 2023, an increase of 16.8% from $167.10 billion in 2022. SaaS spending in 2021 was estimated at $146.32 billion.

Explaining the continued growth in SaaS services, Nag said that cloud spending will grow due to its “perpetual” usage.

“Once applications and workloads move to the cloud they generally stay there, and subscription models ensure that spending will continue through the term of the contract and most likely well beyond,” Nag said.

PaaS spending is expected to grow by 23.2% to reach $136.40 billion in 2023 compared to $110.67 billion in 2022.

The growth in PaaS services can be attributed to its ability to facilitate more efficient and automated code generation for SaaS applications, according to the market research firm.

However, despite the generally upbeat outlook, Gartner cautioned that if enterprises end up deciding to make large budget cuts, cloud spending could be affected since it forms the biggest chunk of any IT budget.

“Cloud spending could decrease if overall IT budgets shrink, given that cloud continues to be the largest chunk of IT spend and proportionate budget growth,” said Nag.

Other public cloud services such as security capabilities, business process services (BPaaS), and desktop-as-a-service (DaaS) are all expected to grow in 2023, the report showed.

Budgeting, Cloud Computing

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Global spending on software will continue to grow despite headwinds in the form of inflation, geopolitical risks and labor shortages, a new report from Forrester shows.

Driven to a large degree by deployment of cloud and enterprise applications, software spending worldwide is expected to grow at a compound annual growth rate (CAGR) of 10.3% from 2021 to 2023—more than two times faster than the rate of spending in other segments of IT, which is forecast to be 4.4%, according to the market research firm.

The report, which is based on a survey of 657 publicly traded software companies, forecasts that dramatic macroeconomic conditions and other factors will have little to modest impact due to the “underlying strength” of the software industry fundamentals.

More than half of the companies surveyed are expected to grow revenue at a medium pace, or between 10% and 20%, the report says, adding that leading software vendors will see another year of solid revenue and profit, albeit at a slower pace than 2021.

The report also shows that software has been the fastest growing category within enterprise IT budgets,  and has delivered high revenue growth rates consistently for vendors.

Cloud to drive enterprise software growth

Enterprise software—including application and infrastructure software—is expected to grow by 12% growth in 2022, buoyed by investment in cloud technology as a result of accelerated digital transformation efforts due to the pandemic, the report says.

“Investment in cloud to modernize legacy applications will drive strong software sales momentum in front- and back-office applications,” the report reads.

The application software market will see a 11.4% CAGR in 2022 and 2023, exceeding $400 billion, Forrester says. Front-office apps—such as CRM software and industry vertical programs—will grow the fastest in this segment, according to the report, which forecasts the $64 billion CRM market to grow by 11.9% in 2022.

ERP application sales are expected to increase at a rate of 10.4% in 2022, also driven by digital transformation efforts. Sales of content and collaboration software, such as Microsoft Teams, Zoom and Slack, are expected to grow at a rate of 11.9%, according to the report.

Sales of custom-built software for various internal divisions across enterprises, which Forrester defines as vertical software, are also expected to grow.

Infrastructure software sales to increase by 12.6%

Infrastructure software sales, meanwhile, are expected to grow at a rate of 12.6% in 2022 and 2023 to exceed $400 billion, driven by the evolution of legacy database technology and investments in devops and database management software, according to Forrester.

Within the infrastructure software category, database management software is expected to grow at 12.8%, driven by demand for real-time analytics.

Further, tech management software, another subcategory within infrastructure software, is expected to maintain growth momentum of 13.1%, driven by the trend for businesses to modernize their tech stacks with complex serverless architectures and containers.

However, security software—also considered by Forrester to be infrastructure software—is expected to grow fastest, at a CAGR of 15.4%, due to multiple attack incidents and geopolitical challenges such as the Russia-Ukraine war.

Software has room for continued growth

Aggregate market capitalization of publicly traded software companies increased from $718 billion in April 2010 to $5.4 trillion currently—equating to a CAGR of 18%, according to the report. The survey also shows that the software sector accounts for only 5.9% of total  global market cap of public companies, indicating more room for growth.

Another reason for continued growth can be attributed to software vendors’ ability to raise prices consistently without losing demand, as software forms a critical part of day-to-day operations, the report says, adding that this strategy results in high and stable margins for vendors.

Companies that have raised prices recently include the likes of Adobe and Microsoft.  

Profit margins, which could be as high as 70% on average, allow software vendors to strategize while weathering challenges such as uncertain macroeconomic conditions, the report says.

Enterprise Applications, Technology Industry

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Plummeting sales of printers and PCs and a growing inflation crisis aside, IT spending will remain strong through 2022, rising 3% year-over-year to a total of $4.5 trillion, according to projections released by Gartner Research.

The 3% increase in total IT spending represents slower growth than in 2021, as the economy as a whole and the IT sector in particular began to recover from the effects of the pandemic, and growth will largely be driven by cloud services and the data center, Gartner said.

According to John-David Lovelock, research vice president at Gartner, inflationary pressures are top-of-mind for most IT decision-makers at the moment, which creates a degree of uncertainty—high prices today could become even higher tomorrow.

“Organizations that do not invest in the short term will likely fall behind in the medium term and risk not being around in the long term,” warned Lovelock in a statement. “The current levels of volatility seen in both inflation and currency exchange rates is not expected to deter CIOs’ investment plans for 2022.”

Inflation is making itself felt in another way, as well, in combination with economic uncertainty driven by the Russian invasion of Ukraine—enterprises are moving heavily away from an ownership model of IT to a service-based one, with cloud spending expected to rise by 22.1% in 2022, according to Gartner.

It’s not all doom-and-gloom for the hardware sector, either, however, as this increased demand for cloud services will push hyperscalers like Amazon, Microsoft and Google to build out capacity. An annual growth rate of 16.6% for server spending will go some way to offset the projected 5% drop in PC, tablet and printer sales, Gartner’s predictions indicated.

Managed services on the rise

The IT talent crunch, as well, has complicated IT spending analysis, Gartner noted. Service providers have been forced to increase prices in order to offer more competitive compensation, which is another factor pushing CIOs toward managed services and the cloud, as hiring in-house IT staff becomes more and more expensive.

These market trends could put small and medium-size businesses, in particular, in a difficult position, according to Gartner senior principal analyst Linglan Wang. Higher prices, combined with a sharper motivation to invest in IT sooner rather than later, is likely to be much less of a financial headache for large enterprises than it is for SMBs.

“Polarization is certainly seen across all IT markets, with a ‘big becoming bigger, winner takes all’ situation,” she said. “We forecast this trend is going to continue over the next couple of years.”

Cloud Computing, Data Center, Technology Industry