Programming code
Worldwide IT spending in 2022 is poised to exceed $4.4 trillion, an increase of 4% over 2021, even after growing at the torrid pace of 9.5% the year before. When the pandemic first hit in early 2020, unsure about the business implications, CIOs pulled back considerably on their IT spending. This trend soon reversed. As companies recognized that the way forward was by investing in tech, IT spending went into overdrive. In the last two years, CIO’s have convincingly demonstrated the centrality of tech in achieving business resilience. Whether facilitating work from home, delivering products and services in novel ways, or analyzing and responding to unpredictable changes in the business environment, IT is now widely recognized as pivotal to the ability of companies to compete successfully, more so amidst growing uncertainty and volatility.
With 2022 bringing new challenges—the war in Ukraine, inflation, high gas prices, talent shortages, and continuing supply chain problems—it’s no surprise that IT spending is predicted to increase further. Still, while the headline numbers are certainly striking, it’s important to dig deeper to see what the spending estimates tell us about how CIOs are addressing the opportunities and challenges of the business environment in which they find themselves.
The rise of software and services
The Gartner data shows that the two fastest growing categories of technology spending in 2022 are i) software, at $675 billion, up 9.8% from 2021; and ii) IT services, at $1.27 billion, up by almost 7%. Software includes sub-categories such as enterprise applications and infrastructure software. IT services includes sub-categories like Infrastructure-as-a-Service or Platform-as-a-Service offerings. These estimates, which continue trends also seen in 2021, depict a clear shift in how CIOs are delivering technology services to their businesses.
Think of it this way. CIO’s must simultaneously manage both the demand and supply of technology services at their companies. On the demand side, CIOs must build and deploy software applications that enable managers to make good decisions at scale amidst rising uncertainty. These applications are often built on top of enterprise systems using a range of software tools, from those that enhance developer productivity to machine learning algorithms that can be incorporated into software products. The increased demand for firm-specific software raises the demand for enterprise and infrastructure software, as the data show.
On the supply side, companies have historically relied on in-house solutions. In recent years, cloud providers have made substantial inroads, succeeding by reducing a company’s capital investment, by eliminating the risk of excess or inadequate capacity, and by adding valuable software functionality to their infrastructure services offerings. Amidst increasing uncertainty, the demand for more flexible and scalable IT services is also growing.
Competing in a software economy
Businesses today compete in a software economy. To remain successful and to thrive, all companies must digitally transform and become experts at building and delivering software, in particular the software that distinguishes them.
To better see how companies are exploiting the shift towards software and services depicted in the data, let’s go beyond the numbers. Take aerospace giant The Boeing Company, which recently announced a game-changing multi-cloud partnership with Amazon Web Services, Google Cloud, and Microsoft, describing it as a “major commitment to the company’s digital future.”
In describing the arrangement, Boeing Global CIO Susan Doniz [disclosure: Ms. Doniz serves on the Advisory Board of the Center for Digital Transformation at UC Irvine, which I direct.] focuses on the importance of the partnership for Boeing’s ability to build world-class software.
Doniz emphasizes that this partnership with cloud providers “is first and foremost an investment in our people.” She writes, “This represents a significant investment in the digital tools that will empower Boeing’s next 100 years.…These partners bring industry-leading expertise that will improve our developer experience, allowing greater ability to create applications nimbly and with focused speed. Our developers will be able to take advantage of modern tool chains and training resources to expand their skills or create new ones, all while innovating to create the aircraft of the future and the amazing tools and systems that support them.”
CIOs are increasingly focused on developing and applying distinctive software that differentiates their companies and provides sustainable competitive advantage. As they focus on building their core software assets, they are also benefiting from the superior competencies of the IT industry. The Gartner IT spending data are reflecting this fundamental shift to the software economy.