IT budgets nosedive across industries as enterprises wait out macroeconomic headwinds

What a difference a year makes. In 2022, enterprises across all industries were flush with post-pandemic relief and hell-bent on continuing the modernization journeys that the prior few years had necessitated to function. The macroeconomic headwinds were there—inflation, fear of recession, actual recession, the great resignation, supply chain malaise, cybersecurity insanity—but they were perhaps overshadowed by the unbridled joy of ditching masks and defining the future of hybrid work.

At the start of 2022, HFS surveyed 602 enterprises across the Global 2000 to take their temperature on IT investment plans. Enterprises indicated an average IT-related budget increase of 11% in the coming 12 to 18 months. While this varied slightly across industries, with manufacturing leading with an expected 12.8% growth, it was a consistent growth story across the board.

HFS saw the tide start to turn through the balance sheets of the major global services firms. By the second half of 2022, quarterly revenues were starting to decline, moving from year-over-year growth in the upper teens to lower teens and into single-digit revenue growth rates for Q1 2023 performance.

When HFS circled back to enterprises at the start of 2023, the resulting data put a fine point on curtailed spending. Our sample of 600 Global 2000 enterprises indicated their plans for IT-related investments had slowed massively to an average of just 3%—a dramatic nosedive in 12 months. Here are some key points to think about:

• Let the record show this is still a growth scenario. IT investment, including IT and business process services, has not stopped. But it has gotten a whole heck of a lot more focused on yielding clear value and benefits, preferably in the same year.
• The planet’s sudden interest and hope in quick wins with ChatGPT and its generative AI ilk need to be researched and managed with the same efficacy and care that decades of AI investment have taught us are necessary. Just be sure that any funds funneled toward generative AI will not stall something useful elsewhere. HFS’ research suggests that enterprise pivots or pauses on “meh-taverse” projects may yield generative AI funding.
• Enterprises need to stay the course on critical initiatives. This includes essential modernization initiatives around data and application migration underpinned by hybrid cloud. Automation, inclusive of smart analytics and AI, will help enterprises continue to do more with the same level of resources. If enterprises are (or think they are) replacing scads of jobs with automation, they were really bad jobs to begin with.
• Service providers need to sharpen their pencils. Decision cycles have gotten longer as enterprises take a wait-and-see approach to new initiatives. Providers need to make sure their business cases are compelling with near-term results clearly articulated, be clear about differentiation versus mere capabilities, and earn the right to serve existing clients every day through stellar service delivery. Assume all existing contracts will be reviewed.

The Bottom Line: IT-related budgets have taken a massive nosedive in one year. Enterprises need to be decisive in their priorities, balancing near-term impact with necessary progress on longer-term modernization. Service providers need to be crystal clear about value impact and masterful in effective service delivery.

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