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IT Services will be largest recipient of CIO spending in 2024

 960 640 Stuart O'Brien
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Global IT spending is expected to total $5 trillion in 2024, an increase of 6.8% from 2023, down from the previous quarter’s forecast of 8% growth – and while generative AI (GenAI) had significant hype in 2023, it will not significantly change the growth of IT spending in the near-term.

That’s according to new analysis from Gartner, which predicts that IT Services will become largest segment of spending in this year.

“While GenAI will change everything, it won’t impact IT spending significantly, similar to IoT, blockchain and other big trends we have experienced,” said John-David Lovelock, Distinguished VP Analyst at Gartner. “2024 will be the year when organizations actually invest in planning for how to use GenAI, however IT spending will be driven by more traditional forces, such as profitability, labor, and dragged down by a continued wave of change fatigue.”

IT services will continue to see an increase in growth in 2024, becoming the largest segment of IT spending for the first time. Spending on IT services is expected to grow 8.7% in 2024, reaching $1.5 trillion (see Table 1). This is largely due to enterprises investing in organizational efficiency and optimization projects. These investments will be crucial during this period of economic uncertainty.

“Adoption rates among consumers for devices and communications services plateaued over a decade ago. Consumer spending levels are primarily driven by price changes and replacement cycles, leaving room for only incremental growths, so being surpassed by software and services was inevitable,” said Lovelock. “Enterprises continue to find more uses for technology – IT has moved out of the back office, through the front office and is now revenue producing, until there is a plateau for how and where technology can be used in an enterprise, there cannot be a plateau in enterprise IT spending.”

Table 1. Worldwide IT Spending Forecast (Millions of U.S. Dollars) 

  2023 Spending 2023 Growth (%) 2024 Spending 2024 Growth (%)
Data Center Systems 243,063 7.1 261,332 7.5
Software 699,791 -8.7 732,287 4.6
Devices 913,334 12.4 1,029,421 12.7
IT Services 1,381,832 5.8 1,501,365 8.7
Communications Services 1,440,827 1.5 1,473,314 2.3
Overall IT 4,678,847 3.3 4,997,718 6.8

Source: Gartner (January 2024)

The overall IT spending growth rate for 2023 was 3.3%, only a 0.3% increase from 2022. This was largely due to change fatigue among CIOs. Momentum will regain in 2024, with overall IT spending increasing 6.8%.

Even with the expected regained momentum in 2024, the broader IT spending environment remains slightly constrained by change fatigue. Change fatigue could manifest as change resistance — with CIOs hesitating to sign new contracts, commit to long-term initiatives or take on new technology partners. For the new initiatives that do get launched, CIOs require higher levels of risk mitigation and greater certainty of outcomes.

Global IT spending set to hit $4.7 trillion in 2023, driven by automation

 960 640 Stuart O'Brien
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Global IT spending is projected to grow by 4.3% this year to reach $4.7 trillion, with CIOs continuing to lose the competition for IT talent, leading to a shift in spending towards technologies that enable automation and efficiency to drive growth with fewer employees.

“Digital business transformations are beginning to morph,” said John-David Lovelock, Distinguished VP Analyst at Gartner. “IT projects are shifting from a focus on external facing deliverables such as revenue and customer experience, to more inward facing efforts focused on optimization.”

The software segment will see double-digit growth in 2023 as organizations increase utilization and reallocate spending to core applications and platforms that support efficiency gains, such as enterprise resource planning (ERP) and customer relationship management (CRM) applications. Vendor price increases will also continue to bolster software spending through this year.

While the overall outlook for enterprise IT spending is positive, devices spending will decline 8.6% in 2023 due to the ongoing impact of inflation on consumer purchasing power (see Table 1).

Table 1. Worldwide IT Spending Forecast (Millions of U.S. Dollars)

  2022 Spending 2022 Growth (%) 2023 Spending 2023 Growth (%) 2024 Spending 2024 Growth (%)
Data Center Systems 221,223 16.6 217,880 -1.5 235,530 8.1
Devices 766,279 -6.3 700,023 -8.6 748,150 6.9
Software 803,335 10.3 911,663 13.5 1,039,175 14.0
IT Services 1,305,699 7.5 1,420,905 8.8 1,585,373 11.6
Communications Services 1,423,075 -1.9 1,461,662 2.7 1,517,877 3.8
Overall IT 4,519,610 2.7 4,712,133 4.3 5,126,105 8.8

Source: Gartner (July 2023)

“The devices segment is experiencing one of its worst growth years on record,” said Lovelock. “Even as inflation eases slightly in some regions, macroeconomic factors are still negatively impacting discretionary spending and lengthening device refresh cycles. Devices spending is not expected to recover to 2021 levels until at least 2026.”

While generative artificial intelligence (AI) is top of mind for many business and IT leaders, it is not yet significantly impacting IT spending levels. In the longer-term, generative AI will primarily be incorporated into enterprises through existing spending.

“Generative AI’s best channel to market is through the software, hardware and services that organizations are already using,” said Lovelock. “Every year, new features are added to tech products and services as add-ons or upgrades. Most enterprises will incorporate generative AI in a slow and controlled manner through upgrades to tools that are already built into IT budgets.”

“When it comes to AI this year, organizations can thrive without having AI in production but they cannot be without a story and a strategy,” added Lovelock.

Banking and investment sector IT spending to hit $652bn this year

 960 640 Stuart O'Brien
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Worldwide banking and investment services IT spending is forecast to total $652.1 billion in 2023, an increase of 8.1% from 2022, with software experiencing the largest growth with an increase of 13.5%.

“Current economic headwinds have changed the context for technology investments in banking and investment services this year,” said Debbie Buckland, Director Analyst at Gartner. “Rather than cutting IT budgets, organizations are spending more on the types of technologies that generate significantly higher business outcomes. Spending on software, for example, is shifting away from building it in-house, in favor of buying solutions that generate value from investments more rapidly.”

According to the Gartner 2023 CIO and Technology Executive Survey, banking and investment services CIOs will spend the largest amount of new or additional funding in 2023 on cybersecurity, data and analytics, integration technologies and cloud.

More than half plan to increase investments in cloud, while reducing IT spending in their own data centers. This is reflected by slower growth in data center systems spending from 13.2% in 2022 to 5.7% in 2023 (see Table 1). Banks are disengaging from tangible assets and capital expenditure (capex) in favor of adopting services and operating expenditure (opex), to meet evolving customer and market expectations.

Table 1. Worldwide Banking and Investment Services IT Spending Forecast (Millions of U.S. Dollars)

  2022 Spending 2022
Growth (%)		 2023 Spending 2023
Growth (%)
Data Center Systems 34,467 13.2 36,433 5.7
Devices 37,961 -9.9 37,149 -2.1
Internal Services 52,933 -2.2 55,156 4.2
IT Services 246,698 5.2 269,735 9.3
Software 153,268 11.2 174,014 13.5
Telecom Services 77,736 -2.9 79,599 2.4
Total 603,063 4.1 652,086 8.1

Source: Gartner (June 2023)

“To deal with the current economic climate, banking and investment services CIOs are now prioritizing more conservative objectives that support resilient and sustainable growth, such as a better customer experience (CX) and more efficient operations,” said Pete Redshaw, VP Analyst at Gartner. “This is a change from previous years when outright growth – new territories, new customers, new lines of business – was the primary objective of banking CEOs.”

Driven by the increased use of consulting services and infrastructure as a service (IaaS), IT services will be the largest spending category, forecast to reach almost $270 billion in 2023. This is an increase of 9.3% over 2022, reflecting the increasingly important role IT service providers play in helping banking and investment services organizations navigate emerging opportunities and challenges.

“Economic uncertainty is leading organizations to break down long-term contracts into multiple shorter projects,” said Buckland. “They’re also reluctant to sign new contracts, commit to long-term initiatives or take on new technology partners, which is driving an increase in the use of IT consulting services.”

With the global talent shortage impacting banking and investment services organizations, spending on internal services will increase by 4.2% in 2023 to support the increased costs of hiring and retaining talent.

“Even after the recent widespread redundancies at many of the technology giants, banks are no longer seen automatically by top talent as the most desirable, rewarding or stimulating destinations,” said Redshaw. “More innovative solutions are needed, such as dropping the requirement for university education and adding benefits such as lifetime retraining, hybrid teams, agile methods and fintech partnerships.”

Government CIO spending on IT predicted to grow 8% in 2023

 960 640 Stuart O'Brien
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Worldwide government IT spending is forecast to total $589.8 billion in 2023, an increase of 7.6% from 2022, with inflation and skills shortages among the top considerations fort CIOs.

That’s according to research from Gartner, which says that this year they will also ensure their digital projects endure mission impact. An increasing number of government institutions are already putting in place at least one digital metric linked directly to outcomes associated with their organization’s public purpose or mission.

By 2026, Gartner foresees over 75% of governments will gauge digital transformation success by measuring the enduring mission impact.

“Global challenges like inflation and workforce scarcity and their local repercussions are testing the abilities of government CIOs to respond with appropriate service delivery mechanisms and organizational accountability,” said Apeksha Kaushik, Principal Analyst at Gartner. “In addition, the “great resignation” and the competing demand from the commercial sector have forced governments to re-examine their approaches to counterbalance internal talent scarcity.

“Governments are increasingly spending their IT budgets to replace legacy applications. Gartner’s 2023 CIO and Technology Executive Survey showed that 57% of government CIOs plan to increase funding for application modernisation in 2023, up from 42% in 2022,”

Software to Remain Highest Spending Segment in 2023

In 2023, software will continue to be the highest growing segment in 2023 (see Table 1). Application modernization investments will increase supported by more software-as-a service-based solution offerings. The use of low-code application platforms (LCAPs) is also on the rise and will further accelerate legacy modernization efforts.

Table 1. Worldwide Government IT Spending Forecast (Millions of U.S. Dollars)

Segment 2022 Spending 2022 Growth (%) 2023 Spending 2023 Growth (%)
Data Center Systems 25,760 11.1 26,623 3.3
Devices 34,224 -8.7 32,643 -4.6
Internal Services 66,940 -2.3 69,178 3.3
IT Services 191,958 3.4 209,103 8.9
Software 161,894 10.0 183,733 13.5
Telecom Services 67,583 -4.9 68,514 1.4
Total 548,359 2.9 589,794 7.6

Source: Gartner (May 2023)

Government spending on IT services will continue unabatedly in 2023. “Compensation constraints and limited resources to attract and retain IT talent is becoming an even bigger challenge today as many governments are facing IT talent shortage,” said Kaushik.

To continue modernizing and innovating critical IT infrastructure and applications, some government organizations will embrace a multisourced workforce strategy by optimizing the use of internal IT talent and investing in employee experience tools to empower and spark innovation, as well as partnering with external IT service providers to speed time to value.

Throughout 2023, government organizations will continue to invest in initiatives that improve access to digital services as constituents increasingly demand experiences that are equivalent to online customers.

While digital transformation remains a top priority for governments, some government CIOs have indicated they are falling short in realizing maximum benefits from their digital investments. “Government CIOs who are moving beyond scaling digital solutions across their critical services are ensuring that further investment in digital solutions can directly impact how they achieve the mission or public purpose of their organization,” said Kaushik.

IT spending to hit $4.6 trillion in 2023

 960 640 Stuart O'Brien
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Worldwide IT spending is projected to total $4.6 trillion in 2023, an increase of 5.5% from 2022 – despite continued global economic turbulence, all regions worldwide are projected to have positive IT spending growth.

“Macroeconomic headwinds are not slowing digital transformation,” said John-David Lovelock, Distinguished VP Analyst at Gartner. “IT spending will remain strong, even as many countries are projected to have near-flat gross domestic product (GDP) growth and high inflation in 2023. Prioritisation will be critical as CIOs look to optimise spend while using digital technology to transform the company’s value proposition, revenue and client interactions.”

The software segment will see double-digit growth this year as enterprises prioritize spending to capture competitive advantages through increased productivity, automation and other software-driven transformation initiatives. Conversely, the devices segment will decline nearly 5% in 2023, as consumers defer device purchases due to declining purchasing power and a lack of incentive to buy (see Table 1).

Table 1. Worldwide IT Spending Forecast (Millions of U.S. Dollars)

  2022 Spending 2022 Growth (%) 2023 Spending 2023 Growth (%) 2024 Spending 2024 Growth (%)
Data Center Systems 216,095 13.7 224,123 3.7 237,790 6.1
Devices 717,048 -10.7 684,342 -4.6 759,331 11.0
Software 793,839 8.8 891,386 12.3 1,007,769 13.1
IT Services 1,250,224 3.5 1,364,106 9.1 1,502,759 10.2
Communications Services 1,424,603 -1.8 1,479,671 3.9 1,536,156 3.8
Overall IT 4,401,809 0.5 4,643,628 5.5 5,043,805 8.6

Source: Gartner (April 2023)

As enterprises navigate continued economic turbulence, the split of technologies being maintained versus those driving the business is apparent in their position relative to overall average IT spending growth.

“CIOs face a balancing act that is evident in the dichotomies in IT spending,” said Lovelock. “For example, there is sufficient spending within data center markets to maintain existing on-premises data centers, but new spending has shifted to cloud options, as reflected in the growth in IT services.”

The IT services segment will continue its growth trajectory through 2024, largely driven by the infrastructure-as-a-service market, which is projected to reach over 30% growth this year. For the first time, price is a key driver of increased spend for cloud services segments, rather than just increased usage.

Exposure from Bank Failures Remains Contained, but Tech CEOs Must Prepare for Disruption

The collapse of Silicon Valley Bank, Signature Bank and Credit Suisse created a shockwave within the banking and tech industries. While exposure remains relatively contained, tech startups are likely to face renewed questions and scrutiny from stakeholders, clients and prospects.

“This is not just a tech problem, as these firms lent money to all forms of startups – not just IT,” said Lovelock. “Tech CEOs must urgently ensure they are moving their organization forward by conserving working capital, monitoring the impact on cash, securing access to credit and keeping a close eye on talent and culture. Once the organization is properly prepared, tech CEOs can then direct and engage employees to find, accelerate and execute on market opportunities.”

Tech Talent Shortages Continue Amidst Layoffs

Even as layoffs continue to impact the tech industry at large, there is still a critical shortage of skilled IT labor. The demand for tech talent greatly outstrips the supply, which will continue until at least 2026 based on forecast IT spend.

“Tech layoffs do not mean that the IT talent shortage is over,” said Lovelock. “IT spending on internal services is slowing in all industries, and enterprises are not keep up with wage rate increases. As a result, enterprises will spend more money to retain fewer staff and will turn to IT services firms to fill in the gaps.”