The inevitable pull of digital transformation is driving technology spending, especially in software, IT services, and newer technologies such as cloud and AI.
Boyden's perspectives on the news and trends that are transforming industries
As digital technology continues to work its way into nearly every aspect of business operations, all companies are becoming tech companies to some extent. Despite rumblings of a recession, most remain committed to their digital business initiatives and tech investments. In a recent poll by IDC, 62% of technology executives in the U.S. said tech spending at their company will remain the same or increase this year. Suppliers helping companies convert to digital operations and cloud computing are faring well.
Technology investments have been rising for years, but lately software stands out. In the past decade, business spending on software more than doubled, to $567 billion in 2022, according to economist James Bessen, Director of the Technology & Policy Research Institute at Boston University School of Law. This is 37% higher than spending on factories and industrial equipment combined. The software and IT services segments are projected to grow 9.3% and 5.5% in 2023, respectively, according to Gartner.
These spending patterns reflect fundamental changes in the way companies use technology. No longer a mere utility for automating routine tasks, it has become integral to operations, and increasingly, an instrument of revenue and profits. This is especially true of newer technologies such as cloud computing, data analytics, artificial intelligence and cybersecurity software, which are increasingly delivering value. Digital projects are now central to the strategic direction of many companies.
Not all segments of the technology sector are enjoying the fruits of this trend, however. Hardware is struggling since consumer spending is down, and business spending on PCs and other kit for working from home has passed the saturation point. Refresh cycles are lengthening for both groups.
The tech sector’s other trouble spot is Big Tech, as giants like Amazon, Alphabet, Microsoft and Meta are forced to rein in their pandemic spending and hiring sprees. For thousands of tech workers, this means layoffs. But this is not the case in the broader tech economy. As the New York Times points out, most of America’s nearly 6.5 million tech workers do not work at tech firms. Employment in technology roles dipped slightly in January, but the unemployment rate in tech jobs remains low at just 1.5%.
Most companies outside the technology sector added to their technology workforces during the pandemic, though at a much more measured pace than the tech giants. JPMorgan Chase, for example, has grown its technology staff from 50,000 before the pandemic to 55,000. In keeping with general trends, most new hires are in cloud computing, data analytics, artificial intelligence and cybersecurity. Global CIO Lori Beer says the bank will continue to add people selectively.
Companies will likely encounter difficulties as they seek to add tech talent to their ranks. In many countries, the open jobs per unemployed rate is hitting record lows. And with software spending on the rise, the need for IT services and support is growing. “CIOs are losing the competition for talent,” said John-David Lovelock, VP and Distinguished Analyst at Gartner. “Skilled IT workers are migrating away from the enterprise CIO towards technology and service providers (TSPs) who can keep up with increased wage requirements, development opportunities and career prospects.”