CIO Pulse: 2023 budgets & priorities

Introduction

After a turbulent 12 months for business, with soaring inflation, global conflict and continued supply chain disruption, what’s in store for IT leaders in 2023?

SoftwareOne recently surveyed 600 IT leaders to understand their IT spending and priorities for the year ahead. While IT budgets are increasing, many organizations are still modernizing systems rushed into production during the pandemic or due to other pressures. This technical debt, combined with anticipated global inflation rates of 6.6% means that even increased budgets are going to be stretched.

Our survey suggests that IT leaders face a challenging landscape that will require the intelligent balancing of innovative new services with optimization of existing technology.

Executive summary

Budgets are increasing but so are expectations

The good news is that IT budgets are widely expected to increase this year, with 93% of respondents reporting budget increases of some kind. Our respondents plan to invest in technology to drive innovation, accelerate digital transformation and boost security across an expanding attack surface. However, 83% believe they will have to achieve more with less.

Technical debt hampers digital transformation

92% of respondents say that digital innovation will drive new revenues in the year ahead, but this could be challenging considering the weight of technical debt. During the pandemic, many organizations rushed projects and applications into production and today three quarters (72%) of those surveyed say their organization is behind on its digital transformation due to technical debt.

FinOps is key to driving cost efficiency and visibility

The vast majority (95%) of respondents said they wanted to increase visibility and control of cloud-related costs, and 45% believe that having greater transparency of cloud costs would drive better value. It’s unsurprising therefore, that 80% of IT leaders expect to increase their spending on FinOps to some degree in the year ahead as a way to gain the much needed clarity and control of cloud spend.

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Chapter 1: CIO Spending priorities and pragmatic transformation

Over the past five years, the role of the CIO and the wider IT department has shifted from just keeping the IT infrastructure running to creating and driving organizational strategy. Today's CIO is an agent of change, helping to create and deliver new digital services to differentiate organizations and drive increased revenues and value.

The recent pandemic created an urgent need for IT transformation, as entire businesses needed technology-enabled remote services to operate. As we emerge from that challenge into a period of economic volatility and changed expectations of what digital services can do, the CIO is once again center stage.

Our survey found that the vast majority of IT leaders (93%) will see increased IT spending this year, with almost one in five (17%) anticipating an increase of more than 50%. Over three quarters (76%) expect an increase of 1-49%, with the majority of these respondents seeing increases that will outstrip the 6.6% anticipated global inflation rate.

Budgets are increasing

For 90% of IT leaders a large portion of this increased budget is a direct result of an increase in spending on cloud technology. The main factors cited for an increase in cloud spend are:

But so are expectations

Despite rising cloud costs, 92% still expect to accelerate their digital transformation initiatives, driving innovation, creating new revenue opportunities, and transforming customer experiences.

The underlying strategy for digital spending is to boost agility (46%), as organizations recognize the importance of being able to adapt to a rapidly changing world. Almost half of respondents (45%) are also increasing spending in hopes of improving security for a massively increased community of remote and hybrid workers, while the same percentage say they want to invest to transform the customer experience.

In summary, while budgets are increasing, so is inflation, meaning that CIOs need to make smart investments in the year ahead to maximize the value of their spending. Faced with an economic downturn, a scarcity of skilled employees, and ongoing global supply chain challenges, it’s never been more important for IT spending to pay off.

Chapter 2: Managing legacy technical debt

Organizations must address their technical debt and legacy IT issues to deliver effective digital transformation.

Almost a third (31%) of IT leaders say they're not getting the best results from cloud because they didn't optimize workloads before migrating.

It is increasingly clear that modernizing legacy infrastructure, improving cloud strategy, and addressing technical debt are important factors for IT leaders in the year ahead. Almost three-quarters of respondents told us that their organization's digital transformation efforts are lagging due to technical debt (72%) while 51% cite a complex legacy IT infrastructure as one of their key challenges over the next year.

In recent years, many organizations rushed to deploy new, remote applications and services using cloud services. Today, 55% of IT leaders are dealing with issues caused by a lack of preparation in moving to the cloud, including 38% who admit they are dealing with issues caused by rushed migration to the cloud and a further 17% who say they moved applications and services to the cloud without full budget planning, meaning they overspent and now need to recalibrate.

Firms are now facing two priorities around cloud services. First, to modernize existing cloud implementations to drive better cost-efficiency, and second to migrate critical applications into the cloud to reduce costs and reduce technical debt associated with on-premise infrastructure.

More than one in four IT leaders are looking to migrate critical workloads to the cloud, citing rapid increases in workload that exceed capacity (40%), and continued transformation (40%). Additionally, 82% expect their investment in app modernization to increase; of those 45% expect a slight increase but 37% anticipate a significant increase.

Meanwhile, 26% of IT leaders say that reducing IT vendor costs is one of their top three priorities for the year ahead, which is perhaps to be expected as many organizations are facing service increase costs due to inflation, or the removal of discounts as contracts come up for renewal.

Chapter 3: Optimizing cloud investment

CIOs understand the strategic importance of digital transformation and innovation, and the ability of cloud providers to deliver cost-efficient services that reduce the need for expensive on-prem infrastructure (and associated skills).

Some 40% of IT leaders say that continued migration to the cloud and data center exits are critical to reducing IT costs in the next 12 months, while 39% also believe cloud-native services help them to reduce licensing costs. But there is a problem.

Too many organizations are struggling to have control and visibility of the true cost of cloud provision. Despite the fact that virtually all the organizations we surveyed (99%) are utilizing cloud technology, only 27% say they are greatly exceeding the value they expected from their cloud investment, largely due to rushed implementations and flawed service configuration.

As we have discussed, many IT organizations have overspent on these services, while others did not optimize workloads and have cloud services that are not configured for their specific needs. This is a form of technical debt—the price companies pay for the short-term delivery of projects at the expense of long-term efficiency. It’s an approach that solves immediate problems and needs (like needing to support remote working) but doesn’t deliver long-term value.

One strategy to combat this issue is using FinOps practices to evaluate and understand the performance and potential of cloud platforms and services. In our survey, 80% of respondents say they will increase their investment in FinOps this year to address the efficiency and effectiveness of cloud IT spending, and 40% rated FinOps as a priority to reduce IT costs. The only other cost reduction priorities similarly ranked were ‘reducing IT labor costs by outsourcing’ and ‘continued migration to cloud from data center exits’.

Some 95% of respondents agreed that having increased visibility and control of cloud investment will be a priority for their organization during an economic downturn.

Getting a handle on cloud costs and performance means that organizations can:

Your Action Plan

Recognizing the need to calibrate your cloud strategy for the current economic climate and technical landscape is the easy part. Developing a plan for change can be more complicated. SoftwareOne has helped many organizations further their cloud transformations, reduce technical debt, and optimize the value of their cloud and software investments. We suggest CIOs start with these five steps:

Step 1

As with any debt, not all technical debt needs to be a priority. Compile a categorized audit of technical debt to identify areas where defects have the biggest impact against business drivers and look at that source code to identify where improvements need to be made.

Step 2

Use clear metrics to demonstrate the value of existing digital investments. FinOps can provide a powerful framework for visibility of your current cloud costs, giving financial accountability across the organization.

Step 3

Identify quick wins. FinOps can also show where you are getting most value from cloud investments and identify missed opportunities to reduce costs or drive value.

Step 4

Develop a modernization plan, complete with information about total cost of ownership and return on investment. Although a move to cloud can reduce cost, the biggest benefit will come from enabling faster innovation to grow your business. Schedule sprints with your development team to evaluate the visible technical debt and schedule efforts towards paying it down.

Step 5

Don't forget about optimizing your licenses. Assess what IT assets you have and where there is room for cost savings, under or overutilization, and where risk can be avoided. Explore our ITAM assessment services to discover what you have in your IT estate or take our free online ITAM assessment to benchmark how you compare to others.

About Us

At SoftwareOne, we understand that technical debt is a consequence of plans that were right at the time, but like any debt, needs to be paid off to avoid longer-term cost implications. Custom coding and tailored solutions often only work on the system they were designed for and can be challenging to migrate into a cloud environment. SoftwareOne has helped many organizations to carry out application modernization and move applications into the cloud before technical debt puts the brakes on digital innovation. What's more, as leaders in the field of FinOps, SoftwareOne helps organizations get the most out of every dollar an organization spends. It's this combination of innovation with optimization, delivered in a pragmatic way, that sets SoftwareOne apart.

The SoftwareOne CIO Pulse: 2023 budgets and priorities survey was conducted in December 2022 and January 2023 with CIOs and IT leaders in the US (350) and UK (250). The research was conducted by Vanson Bourne.