NelsonHall is conducting an analysis of the needs of IT services clients to understand their IT and business priorities and how the growth of digital is impacting their business. In a survey of ~1,000 IT services clients across 17 industries and every region of the world, NelsonHall has identified distinct patterns of user intentions, both in terms of how clients plan to change their external IT spending, and how they assess the capabilities of their IT services vendors. Here, I examine how IT service buyers project their IT spend patterns to evolve in the coming year.

2018 IT spend to remain relatively flat

The most commonly cited projection by IT services buyers is for overall IT spend to remain relatively flat. Fifty-two percent of companies project 2018 IT spend to be within 1% of their 2017 spend. This spend correlates closely to expectations of revenues. Fifty-three percent of companies project the level of IT spend relative to revenues to remain flat.

Thirty-four percent of companies project overall IT spend to grow in 2018 by >1%. However, the average growth of these companies is 2.3%, with only 1% of companies projecting growth greater than five percent. While all regions and industries contain some companies projecting growth, there are areas where growth is concentrating.

Geographically, the U.S. and APAC possess the highest proportion of companies projecting growth. Approximately 38% of companies in each region project IT spend growth. The U.K. has 33% projecting growth, while 29% of continental European companies project growth.

Looking across the seventeen industry sectors, only three have a majority of companies projecting growth:

• Media (70% of companies project IT budget growth >1%)
• Retail (58%)
• High tech (53%).

Five other industries have >40% of companies projecting growth in 2018 IT budgets: life insurance, retail property and casualty insurance, logistics, pharmaceuticals, and retail and commercial banking.

Each of these industries is tasked with responding to disruptive competitive threats as well as the growing use of digital in delivering customer services. Given these dual imperatives, it makes sense to see greater allocation of operating costs to IT budgets.

External IT spend is concentrated on applications and consulting

While overall IT spend is primarily flat or growing slightly, external spend is projected to see significantly less growth. Only 5% of organizations project overall external IT spend to expand across 2017 and 2018 by more than 1%, while 55% project it to change less than 1%, and 37% project it to fall between 1% and 2%.

However, this doesn’t apply to every type of IT service. Three IT service lines are projected to experience growth of >1% in spending by >30% of companies:

• Application services (34% project growth >1%)
• Application testing and requirements assurance (31%)
• Consulting (30%).

The overweighting of spend toward these IT service lines correlates directly to the IT priorities that companies have articulated.

Companies are looking to reduce IT costs and shift budgets to value-add digital initiatives

Among the business and IT priorities identified by companies, a clear pattern emerges of a focus on expanding the use of digital and automation. The objectives of these initiatives are to both reduce internal operating costs and respond to evolving external requirements including changing customer, competitive, and regulatory compliance demands.

Business objectives identified as high in importance by a significant proportion of companies include:

• 72% are looking to increase the rate of automation in operations
• 68% are looking to reduce the cost of operations
• 67% are looking to digitalize operations.

These business objectives align with commonly pursued IT objectives:

• 89% are looking to introduce AI and cognitive technologies
• 69% are looking to increase the use of SaaS in support of new initiatives
• 67% are looking to increase the proportion spent on new initiatives rather than maintaining and running existing systems.

With these objectives, it is no wonder that external spend is being targeted at application services and consulting. Companies are looking to vendors to help implement solutions (such as SaaS and cognitive applications) that can reduce operating costs and shift the constrained IT budget dollars to initiatives with direct business value such as improving digital customer engagement platforms.

As discussed in a previous blog post, these IT budget constraints and targeted priorities are driving specific capabilities that vendors need to demonstrate – namely industry acumen, digital consulting, and SaaS implementation capabilities.