Not all IT spending is created equal - behind the numbers of the Computer Economics IT spending survey

Profile picture for user jreed By Jon Reed August 26, 2020
Summary:
Each year, the Computer Economics IT Staffing and Spending survey is an important gut check. Never more so than this year. I went behind the numbers in this year's survey with Frank Scavo - and got a sneak preview of their upcoming survey update.

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Each year, I look forward to Computer Economics' take on IT spending. This year is different - the stakes are much higher. The pandemic's impact on IT budgets is, in my view, a key indicator of how our economy is faring - and the prospects for recovery.

This year, Computer Economics, now a part of Avasant Research, released their IT Spending and Staffing Benchmarks report, assessing data they gathered up to May 2020 (you can get an executive summary of the survey with a free sign up).

They also added a note on the COVID-19 circumstances to their COVID-19 advisory page. They are now undertaking a survey update, given the need to grasp how IT spending is shaping up in such an unprecedented year.

To get a better sense of the sentiments behind this year's survey, I watched the Computer Economics webinar, Impact of the Coronavirus Pandemic on IT Budgets in 2020. I recommend the webinar, but it raised some potent questions. I wanted to better understand:

  • The impact of line-of-business cloud spending on Computer Economnics' forecasts
  • How this year's IT spending survey stacks up with past recessions
  • Are we in truly unprecedented circumstances? How should IT leaders respond?

To get a better handle on these questions, I had an online back and forth with Frank Scavo, President of Avasant Research and Computer Economics.

Computer Economics has been doing this annual survey since 1990. One thing I like about the survey is that they drill into a number of industry sectors (28 this time around). This year, they surveyed over 200 technology executives.

IT spending forecasts for 2020 - assessing the COVID-19 impact

Here is one example of the industry breakdown. On this slide, Computer Economics is projecting a full 2020 budget impact, based on the survey data they compiled through May:

IT spending recovery - Computer Economics
(via Computer Economica, an Avasant company)

Scavo told me this year's survey was off to a boomingly optimistic start. Then the pandemic changed everything:

Until about April, our survey respondents were indicating this was going to be the strongest year for IT budgets in many years. Then the pandemic hit right in the middle of our survey period. So, we had to go back and re-survey those organizations that had already responded to see if anything had changed.

For those hoping the pandemic's impact on IT budgets is short-term, Scavo says that's not what it looks like from here:

In terms of the pandemic response, we were surprised by how many IT organizations had not yet taken budget cuts. At the time of our survey, a number of respondents told us that it was too early to say whether they would need to cut IT spending. We are now doing a follow-up survey, however, and the early responses so far indicate more budget cuts than we were seeing in the April-May timeframe.

Line of business cloud spending - how does it factor in?

One not-surprising bright spot in this year's survey: cloud spending (If we can call lack of cuts a bright spot). Computer Economics asked respondents if there were any plans to change cloud budgets. As of May:

  • 78 percent said "no change"
  • 8 percent were decreasing
  • 14 percent were increasing

But how does Computer Economics factor in cloud spending by line of business leads? Is it more difficult to accurately forecast IT spending when lines of business have their own cloud spending agendas? Scavo's response:

The cloud transition has been going on for years, and the pandemic just accelerated it.  Our survey responses indicate that those organizations that are further along in their cloud journey were able to make the transition to remote working in a much easier fashion.

I don't see that CIOs lack visibility into line of business spending for cloud services. Most often, CIOs are fully on board with the line of business leaders. It's just a matter of where the funding comes from. Our survey counts IT spending outside the IT budget just as if it were in the IT budget. That's a number that has been steadily increasing over the years, just as you would expect.

IT spending in a recession - do the lessons from past down cycles apply?

It's always helpful when you can apply what you've learned from past economic cycles. But can we contrast past IT spending dips to this one? Scavo says that recessions bring an interesting IT twist:

People naturally assume that in a recession, IT spending as a percentage of revenue must be declining. Our historical data, which goes back over 30 years, indicates that IT spending as a percentage of revenue actually increases during a recession. It doesn't mean that IT spending itself increases as an absolute number, but as a percentage of revenue it increases. The reason is that revenue declines faster than IT spending declines. So, the ratio increases.

That's what jumped out at me from the previous slide. Computer Economics notes that "If these cuts materialize, it will be unprecendented." Scavo told me:

It is amazing that in the past two recessions, changes in IT budgets at the median were flat.  It was at the 25th and 75th percentiles, where more organization were cutting budgets than increasing budgets. If IT budgets actually decrease at the median this year, it will, in fact, be unprecedented. We're hoping that the results of our re-survey will give us more insights.

Looking ahead - a sneak preview of Computer Economics' survey update

That means the updates to this survey will be important to watch. I was interested in the optimism reflected in this slide:

IT spending 2020 - via Computer Economics
(via Computer Economics, an Avasant company)

My timing was good - I heard from Scavo as they were gathering their survey updates; he had some teasers for me. I asked him: Is it fair to keep future sentiment on spending at arm's length right now, given so much unpredictability? (impact of joblessness, vaccine research/development, upcoming elections, etc.).  Scavo responded:

We said at the time of publication that we thought IT leaders were underestimating the amount of time it would take for IT budgets to recover to pre-pandemic levels. Well, now we are going back to the field with a repeat of the survey, it appears we were correct. The early results seem to indicate a more downbeat assessment in terms of how long it will take.

My take

At a time when tech stocks, including enterprise cloud bellwethers like Salesforce, are surging, this data is an important project-based contrast.Those in our industry who assume that technology is somehow above the fray of the economic downturn are clearly wrong, despite what today's stock market might imply.

Yet it's also clear that companies perceive technology, from digital commerce to remote enablement to workflow automation, to be crucial investments - if they want to get to whatever's next.

Not all IT spending is created equal. The impact of COVID-19 can be brutally different, even within the same sector. If we think digital acceleration and mission-critical projects, that's probably the state of IT as best I can tell. That puts legacy migrations without business imperatives on the back burner. But it also sidelines the "sexy technology" sell - pitching AI or blockchain for its own sake.

Scavo's final comments to me reflect a similar mix. As he reviews their data update, he told me:

Early results indicate that it is mostly non-critical IT projects that are being delayed. Things like hardware refreshes, routine system upgrades, and legacy system migrations, as you would expect. But the really strategic stuff, like cloud migrations, in some cases, are being accelerated. 

You need to understand that the pandemic response in many cases actually calls for more IT spending, especially if any organization has not had the infrastructure in place to support remote workers.  And, for what it's worth, over the past few weeks, in Avasant's consulting practices, we've been seeing a lot of projects restarting. So, maybe the worse is over.

Alas, so-called "best practices" are a fiction in this environment. Every predicament is different. I asked Scavo if he had a general recommendation for IT leaders, but he pushed back:

It is so hard to generalize, even within a single industry. For example, some retailers are nearly out of business, while others are seeing boom times. For example, you know who's really doing well? Retailers of gardening supplies that have a good e-commerce channel. I've come across two or three of those in the past few months. They can scarcely keep up in demand. People are spending more time at home and want to get out of the house and tend to their gardens. Who would have predicted that?

True - and yet I have a funny feeling we'll be getting a load of 2021 tech predictions posts again this year, from the same gurus who were utterly wrong about 2020.

Image credit - ax inspector investigating offshore company documents and papers with magnifying glass, by @igorstevanovic, from Shutterstock.com. Two screen shots from linked Computer Economics study used by express permission of Computer Economics.

Disclosure - Computer Economics, now part of Avasant Research, is a diginomica research affiliate. They provide with complimentary views of their research and background context for editorial consideration. Salesforce is a diginomica premier partner.