Cloud Is Taking Budget Away From IT

Scott Ferguson

Cloud computing is bringing a whole new level of sophistication and efficiency to the enterprise, as well as helping to fuel developments such as artificial intelligence. At the same time, cloud is also shifting the tech budget away from IT toward other parts of the business.

For several years, IT has watched more and more tech spending shifting to line of business (LoB) managers, who have taken advantage of innovations, such as Software-as-a-Service, to buy and install technologies within the corporate network.

This has led to a range of issues known as "shadow IT." (See NASA Cloud Computing: Security Concerns Hover.)

Despite security and other concerns, LoB managers continue to take a greater portion of the enterprise tech budget, and soon they will have as much spending power as IT.

A recent report from IDC finds that non-IT tech spending will increase nearly 6% this year, and total $609 billion. In addition, between 2015 and 2020, LoB tech spending will have a compound annual growth rate (CAGR) of 5.9%, while spending by IT will have a CAGR of 2.3%.

This means by 2020, LoB and IT spending on technology will be about equal.

Part of this shift is due to cloud, since buying and selling software, especially with SaaS, is much easier than when most technology was on-premise. In addition, IDC found that "Innovation of Accelerators," such as Internet of Things, AI and cognitive computing, are also shifting money and budget away from IT and to LoB.

"The Innovation Accelerators have put the line of business units in the frontline of the digital transformation and have forced them to work either alone with the ecosystem outside of the IT organization as 'shadow IT' or in closer collaboration with the IT department than ever before," Naoko Iwamoto, an analyst with IDC, wrote in the March 23 report.

The IDC report also backs-up findings that Enterprise Cloud New found in its special report on cloud skills in 2017, specifically that cloud is requiring news skills from IT professionals, including the ability to work with other parts of the business, as well as dealing with outside clients. One reason for this change is that IT has lost some control of the budget and power has shifted to other parts of the enterprise. (See Hottest Cloud Skills for 2017: Exclusive Special Report.)

Despite the changes, IT is still the prime buyer of heavy-duty equipment, such as servers, storage and networking gear. LoB managers are purchasing more PCs, smartphones and tablets. However, LoB managers, will spend about $150 billion on applications this year, plus $120 billion on project-oriented services and about $70 billion on outsourcing.

During the same time, IT will spending its budget dollars on outsourcing ($149.2 billion), project-oriented services ($82.2 billion), and support and training ($79.8 billion).

In terms of the shift of spending to LoB managers and away from IT, the States are leading the way, according to IDC, and this is due to the country's embracing cloud computing.

"Explosive cloud and other 3rd Platform technology adoption is enabling U.S. lines of businesses to rely less on enterprise IT than any other country to fund their technology purchases," Eileen Smith, the program director for Customer Insights and Analysis at IDC, wrote in the report.

Related posts:

— Scott Ferguson, Editor, Enterprise Cloud News. Follow him on Twitter @sferguson_LR.

(5)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
3/31/2017 | 8:34:32 AM
Re: Enterprise
Our local government has for many years sought to "outsource" lots of contracts cutting down on running it's own services. With the promise of less regulations and a more business oriented philosophy from national leaders I would suspect the trend for LoB and cloud computing services is going to contine a steady uptrend in other sectors as well.
3/27/2017 | 2:42:15 PM
Re: Enterprise
@danielcawrey but that is a standard business practice for service providers. My internet connection comes from Optimum, and it has a rep call me every few weeks to offer an upgrade. That's on top of email offers for various other packages from the co.
3/27/2017 | 2:33:19 PM
Re: Enterprise
@Ariella What's interesting is that many of these cloud providers are now trying to sell more services. So yes, in the beginning a cloud deployment may seem cheap. But the providers see an opportunity to sell even more after the first taste. 
3/26/2017 | 10:49:34 AM
Re: Enterprise
<In terms of the shift of spending to LoB managers and away from IT, the States are leading the way, according to IDC, and this is due to the country's embracing cloud computing.>That does make sense. If you're adopting cloud, you can spend less on IT. And given the fact that every place seeks to cut costs, it would seem to be a smart move.
3/25/2017 | 3:17:54 PM
It is seriously a great time to be in the enterprise business. 

Whether it comes from LoB, Shadow IT or regular budgets, this SaaS model that is subscription based is really useful for both sides. It's just going to keep growing gangbusters too. 
More Blogs from Scott Ferguson

For the last several years, CIOs and IT professionals have been wrestling with two specific issues as they work toward a cloud-centric future: Agile IT and the rush toward digital transformation. While enterprises want to keep innovating, finding a starting point and knowing which projects to tackle first remain a major obstacle.

To get a better handle on Agile IT and digital transformation, Light Reading Managing Editor Scott Ferguson recently spoke to two experts in these fields: Dan Kearnan, senior director of marketing for cloud at SAP, and Roy Illsley, a distinguished analyst with Ovum.

From its roots in industrial farm machinery and other equipment, John Deere has always looked for a technological edge. About 20 years ago, it was GPS and then 4G LTE. Now it's turning its attention to AI, machine learning and IoT.
Artificial intelligence and automation will become more integral to the enterprise, and 90% of all apps will have integrated AI capabilities by 2020, according to Oracle CEO Mark Hurd.
IBM is now offering access to Nvidia's Tesla V100 GPUs through its cloud offerings to help accelerate AI, HPC and other high-throughput workloads.
CIO Rhonda Gass is spearheading an effort to bring more automation and IoT to the factories making Stanley Black & Decker tools and other equipment.
Featured Video
Upcoming Live Events
October 22, 2019, Los Angeles, CA
November 5, 2019, London, England
November 7, 2019, London, UK
November 14, 2019, Maritim Hotel, Berlin
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events
Partner Perspectives - content from our sponsors
Sports Venues: Where 5G Brings a Truly Immersive Experience
By Peter Linder, 5G Evangelist, North America, Ericsson
Multiband Microwave Provides High Capacity & High Reliability for 5G Transport
By Don Frey, Principal Analyst, Transport & Routing, Ovum
All Partner Perspectives