With worldwide IT spending projected to total nearly $4 trillion in 2019, organizations of all sizes and in all industries continue to focus on boosting productivity while reducing costs. That often means taking a good hard look at where the dollars dedicated to IT infrastructure are going and if they’re delivering an ROI that justifies the spend.

How Companies Budget for IT

IT budgets include everything from in-house IT staff to computer hardware and software, apps, web hosting, cloud services, cybersecurity, maintenance, telecommunications, utilities, consulting, travel, and maintenance. Though the numbers vary greatly by sector and other factors, a recent Deloitte Insights study found that, on average, companies spend 3.28% of their revenue on IT.

That total budget percentage is based on all reporting industries, with banking and securities firms spending the most, 7.16%, and the construction industry spending the least at 1.51%. The disparity comes down to how big a role an IT department plays in the business. For those who rely on technology to execute their business plan, the allocation is understandably higher. Others view IT as playing a supporting, not central, role. 

The study also found that 57% of high-performing companies (defined as those who consistently outperform the S&P) increased their IT budgets from 2016 to 2017. Industries in this category include health care services, insurance, media, travel, and hospitality. 

Ultimately what the findings reveal is that percentage is not as much a key to success as spending the rightpercentage for your unique business and industry. And, as businesses like those in the healthcare industrybecome more technology-driven, the percentage is likely to change over time, forcing organizations to plan for the possibility of IT becoming a bigger piece of their budget pie.

Migrating to the Cloud for Savings

Today IT impacts everything from productivity to employee morale. That means the entire organization is affected when companies start to fall behind in smart IT investment. CIOs must now rethink budget allocations across all categories and use funds wisely in support of their overall strategy.

Ways to do this include adopting cloud computing, using SaaS, and embracing the benefits such as reduced hardware costs, greatly improved disaster recovery, faster server provisioning, significant energy cost savings, and increased productivity that come with server virtualization. 

A timely example is Microsoft Windows 7’s end-of-life transitionthat happens January 14, 2020. Companies that have not yet begun to prepare for the switch may see their business severely impacted, particularly in the cybersecurity realm. But hardware, too, will be affected, devices will need to be replaced, and software will need to be updated. Yes, it’s an inconvenience, but it can also be a great opportunity to explore making IT budgeting changes that allocate funds to efficient and cost-saving innovations.

Choosing the Right Level of IT Expertise for Your Business

Outsourcing IT services helps you reduce costs and gain flexibility and scalability while giving you more time and money to spend on core competencies that improve overall efficiency and generate greater business value. Important ways you benefit include:

• Enhanced cybersecurity protectionshandled by professionals who are trained in the latest technologies. You save by not having to make expensive investments in education, downtime, and upgrades. 
• The ability to incrementally add capacity without significant capital investment in hardware, services, or staff that may ultimately be unneeded.
• Improved reliability of IT services through leverage of entire teams of tech experts who can deliver those services on a 24/7/365 basis. 

Transitioning certain in-house IT services outside means you can not only adjust spend but reallocate your company’s IT staff to higher-priority enterprises such as designing new and/or improving the delivery of established products and services. 

Making the Switch

Technology comprises a wide variety of options and solutions. The key is finding the “right” solution for your company’s specific needs. With the rapid advance of cloud services, AI, data management, and more, IT spending is steadily shifting from ownership to service-based models. And as the digital transformation evolves, there will be a greater move towards outsourcingand “pay for use” approaches. 

To efficiently budget for IT, every CIO must take a serious look at what cloud computing offers today and in the long term. While many companies are choosing to take a cautious path, approaching a cloud-based solution as a serious, cost-efficient alternative is well worth the effort. It offers immediate cost savings, can be implemented in stages, and promises to deliver significant competitive advantage for those willing to adopt it.