State of IT 2023

How do you expect your total IT budget to change from 2022 to 2023?

Notable Company Revenue Trends:

• Enterprises are more likely to expect YoY revenue growth in 2023 (64% vs. 58%, on average)
• Industries most likely to expect YoY revenue growth in 2023:
  • IT services (76%)
  • Financial services (74%)

During the pandemic, we saw a shift away from on-prem hardware and software spending, and into “outsourced” cloud-based and managed services (combined 37% of IT budgets in 2020 vs. 43% in 2022), which was largely attributed to the shift to remote work.

Now, companies are exploring new, long-term working environments as some pandemic trends wane. As of June 2022, among companies that allowed remote work in recent years, 85% had asked employees to return to physical offices (44.4% all workers vs. 40.1% some workers).

According to our data, this transition back to in-person environments will influence a rebalancing of spending across hardware, software, cloud, and managed services.

Biggest IT budget shifts in 2023:

Cloud spending plans rose from 22% of overall IT budgets in 2020 to 26% in 2022. But with more workers returning to the office, cloud spending plans have since fallen back to 23% of planned 2023 IT budgets.

Meanwhile, spending on managed services (which can be used to service both cloud and on-prem infrastructure) rose to 18% of IT budgets in 2023, up from 15% before the pandemic.

Notable IT Budget Allocation Trends

• Managed services spending, as a percentage of total IT budgets:
  • 20% in Enterprises vs. 17% in SMBs
  • 20% in Europe vs. 17% in North America
• Cloud spending, as a percentage of total IT budgets:
  • 25% in North America vs. 21% in Europe

Why the shift away from cloud and into managed services?

Amid the return to offices, there is now a need to manage both on-premises and cloud infrastructure, and organizations are likely right-sizing their environments to support their employees wherever it makes most sense. Additionally, after businesses spent the last couple of years modernizing, many are likely now turning to services to help them maintain their new technology stacks.

Hardware: Primary Spending Areas

Following the historical trend, laptops and desktops still account for the biggest portion of IT budgets in 2023 — although spending will take a slight dip following the initial surge in laptop buying at the beginning of the pandemic, and as more workers return to physical offices.

Hardware: Big Shifts

With energy prices up dramatically YoY in the U.S. and the U.K. at the time of this writing, organizations are planning to shift budgets into power and climate to gain efficiencies, especially in Europe, where already high prices were pushed further skyward due to the conflict between Russia and Ukraine. In 2023, businesses estimate that power and climate spending will account for 12% of IT hardware budgets in Europe vs. 5% in North America.

Software: Primary Spending Areas

The largest share of 2023 IT software budgets will go towards security software, narrowly rising above productivity software, which is historically on top. This increased emphasis on cybersecurity is mirrored in increased spending on managed security services as well.

Software: Biggest Changes

On-premises spending on industry-specific applications has fallen significantly — while simultaneously, managed businesses application spending has increased significantly, which suggests that many businesses will shift the burden of managing these applications to a third-party provider.

As data increasingly drives value for businesses around the globe, spending plans for database management systems are up significantly over the past two years, rising from 6% in 2021 to 8% in 2023.

Cloud: Top Spending Areas

While the portion of overall IT budgets allocated to cloud services will decrease slightly, the top spending areas aren’t changing much. In 2023, productivity solutions, online backup and restore, and business support applications will be the top three areas businesses spend on within the cloud category.

Cloud: Biggest Changes

The largest shifts in cloud spending appear in the fast-rising category of desktop-as-a-service, which has accumulated 5% of overall cloud budgets, up from 3% in 2020. Notably, 52% of businesses are planning to use virtual desktop infrastructure (a category which includes desktop-as-a-service) within the next two years, a topic which we cover further in our emerging tech section of this report.

Managed Services: Top Spending Areas

While the overall share of IT budgets going towards managed services is increasing, the top spending categories within managed services remain the same. The largest share of 2023 managed services budgets will go to managed business applications, managed security, managed hosting, and managed hardware support and maintenance.

Managed Services: Biggest Changes

Over the last few years, the biggest growth area within managed IT services has been managed business applications (e.g., CRM, SCM, ERP, HR, accounting). During the same time period, both cloud and on-prem spending within this category have remained relatively flat.

On the other hand, managed storage and backup spending has decreased from 11% of managed services budget to 9%. During the same time period, cloud file storage budgets have increased from 7% to 8% of cloud budgets.

Not only do IT professionals in companies considering AI believe the technology will be important in the future, our data also suggests AI is ready for prime-time in many real-world scenarios. Top current and planned use cases include analytics to inform business intelligence, automation of tasks (which could help mitigate IT labor challenges), and fraud / security intrusion detection.

Security Spending Plans

In the budget allocation section of this report, we offer detailed breakdowns of IT spending plans across hardware, software, cloud, and managed services. Security solutions deserve a closer look because they span all four categories, collectively accounting for an important share of overall IT budgets.

Looking forward, our study reveals planned adoption growth across many emerging security technologies, with AI use within the space also increasing.

Why is adoption of security technology growing?

With the future direction of the economy up in the air, businesses expect to sustain many of the same challenges they endured earlier in the pandemic.

Going into 2023, more organizations expect to encounter supply chain issues and increased product costs than in the previous 12 months.

At the same time, compared to last year, fewer organizations expect to face challenges around remote work, perhaps due to process refinement or the expectation of workers returning to physical offices. Product shipping times and product availability are also expected to improve slightly.

Notable Challenges Businesses Expect to Face

• Enterprises (500+ employees) are two and half times as likely to anticipate IT labor or skill shortages than small businesses (1-99 employees)
• Organizations in North America are much more likely than businesses in Europe to expect supply chain issues, increases in product costs, limited product availability, and chip shortages
• European businesses are more likely than North American businesses to expect to face challenges related to supporting remote employees

Labor Challenges in IT

Amid favorable market conditions for employees, 58% of senior IT leaders (director titles and higher) report currently experiencing difficulties hiring IT talent.

In this atmosphere, IT professionals are expecting more from their employers than they did last year, and they have the freedom to leave if they don’t believe they’re being valued in their current roles.

Among IT Professionals

• More than a third (34%) plan to look for jobs in 2023, up from 25% in 2022.
• Nearly a quarter (23%) will only apply to fully remote roles, up from 18% in 2022

The push to find new jobs is likely due to a number of factors, including the opportunity for better pay, better working conditions, and increased happiness. Our data also suggests some factions of staff are also seeking new employment due to dissatisfaction with having to return to the office.

Among companies that allowed remote work previously, 85% have asked employees to return to physical offices. A quarter of these businesses sending workers back into the office had at least one employee quit to avoid returning.

While hiring plans within the IT department have calmed down a bit since last year, it’s still a good market for IT professionals seeking a new role.

For example, the IT hiring outlook is better among larger businesses: 42% of enterprises want to increase the size of their IT department, making them twice as likely as small businesses (20%) to hire additional staff.

However, with inflation soaring, fewer than half of IT professionals (46%) believe their salaries will keep pace with the rising cost of living. And as always, IT professionals will need to update their skills continuously to stay relevant in an always-evolving field.

Let’s revisit the big picture to sum up the many forecasted insights revealed by the State of IT study.

From individuals to companies, everyone is feeling the scorch of inflation. Businesses, while cautiously optimistic about revenue projections, are still under pressure to weather likely inclement conditions ahead.

To prepare for a likely economic downturn, many corporate budgets are being pared back to the essentials and line items that will likely deliver demonstrable value to the business. At the same time, individual employees aren’t confident that their salaries will keep pace with the rising cost of living.

The bright silver lining for technology sellers is that in recent years, businesses have seen the value of investing in technology. Now even with most organizations expecting a recession, IT budgets are expected to increase.

Not only does this stat bode well for 2023, it speaks to a fundamental perception shift that has become more pronounced over the last few years. IT modernization efforts pushed forward by the pandemic not only helped organizations survive, but empowered them thrive under difficult circumstances. Technologies spanning hardware, software, cloud, and managed services enabled the “remote work revolution,” allowing many businesses to adapt and operate effectively during the COVID-19 outbreak, transforming how decision makers think about and ultimately value technology in the workplace.

Now, more than two years later, even in the face of a recession and as many workers return to offices, businesses no longer see technology as a cost they must absorb. Rather, IT has become a facilitator — an investment critical to success in the modern business environment. In other words, technology has become an essential budget item vs. a “nice to have” — and from our data-driven point-of-view, IT spending levels will continue to grow, even as businesses reduce costs in other areas. Additionally, as organizations face difficulty hiring and retaining IT talent, organizations will increasingly leverage tech vendors’ services and technologies to fill the skills gap.

In good times and bad, in-market IT buyers will actively search for new technologies to propel their businesses forward in 2023 and beyond, and it would be a mistake for tech marketers to cut back now and leave money on the table.

Remember: Opportunities for tech vendors will still be plentiful — even in the event of a recession over the course of the next 12 months. Buyers spanning all industries will focus on optimizing efficiency, looking for ways to accomplish more with fewer resources. And in recent years, investing in technology has been proven to enable productivity and lower overall costs in many instances.

For tech marketers, messaging should be sympathetic to current challenges, focus on proven results, and demonstrate how spending on technology now can help companies save money in the long run. And as always, tech sales and marketing professionals will see the most success when they can offer decision-makers proven solutions to their problems at the right time — as they actively research how to solve real-world problems.