ESG Research: Key Trends Impacting Tech Spend During COVID-19

Digital transformation and cloud consumption continue to accelerate

Mark Bowker

There’s no doubt that digital transformation has gone mainstream. Even before COVID-19, organizations across every sector were moving to the cloud to consolidate legacy IT infrastructure, modernize their applications, and improve operational agility and efficiency. The global pandemic has simply underscored the importance of having an IT architecture that can easily and quickly adapt to rapidly changing situations. At the same time, every organization is at a different stage in their digital journey. So what gives digitally mature businesses a competitive edge? This question was front and center during a recent webinar with Equinix, where we discussed the importance of cloud-smart application strategies and driving digital transformation at global scale.”

Our recent Enterprise Strategy Group (ESG) research found that, while all organizations are pursuing public cloud strategies, those that are digitally mature are adopting public cloud faster, with COVID-19 accelerating this trend.

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Our top findings on digital transformation and the impact of COVID-19

In November 2019, we conducted the first of two surveys, “2020 Technology Spending Intentions.” We surveyed 658 senior IT decision makers across multiple countries and industries in North America and Europe on their key business and technology priorities driving 2020 spending plans.[i]  A follow-up study in April/May this year, “The Impact of the COVID-19 Pandemic on Remote Work, 2020 IT Spending and Future Tech Strategies,” surveyed 500 senior IT decision makers and 1,000 knowledge workers in North America about the impact of COVID-19 on work and IT investment priorities.[ii]

The following key findings of both surveys illustrate the digital transformation priorities before and after COVID-19:

1. Digital transformation is more important than ever before: Prior to the pandemic, over three-fourths of organizations had digital transformation initiatives underway. Becoming more operationally efficient was the leading objective for transformation, especially with companies delivering business services. The second motivator was providing better and more differentiated customer experiences, in particular with retail and wholesale businesses. And the communications and media companies led the third transformation objective of developing new data-centric products and services. These top three digital transformation drivers were excellent preparation for the impact of COVID-19 as quarantining took effect and more people were working, shopping and entertaining themselves at home. Even the education industry’s objective of developing entirely new business models helped them to ramp-up their online learning offerings from grade school through college.

However, some industries have been impacted more than others by COVID-19, such as technology, healthcare, manufacturing, technology, and retail/wholesale. Unsurprisingly, these industries plan to increase their tech spend more than other industries as they are either experiencing significant growth or are dynamically changing the way they do business.

Top 3 digital transformation drivers:

1. Becoming more operationally efficient.
2. Providing better customer experiences.
3. Developing new data-centric products & services.

2. Cloud is ubiquitous but also a differentiator: As a result of this shift in IT spending, cloud services and architectures are top of mind as these businesses look to accelerate their investments. Most organizations today have adopted a hybrid multicloud approach, with some workloads remaining on-premises and some deployed in private or public clouds. Nearly all the respondents in our survey indicated they are currently using public cloud services and plan to move the bulk of on-premises workloads to the cloud within the next five years. However, digitally mature organizations have more of a cloud-first mindset, with 88% currently using public cloud infrastructure services, versus 56% of those organizations that do not have cloud on the roadmap. Digitally mature organizations tend to turn to the cloud first when deploying new applications or building out IT infrastructure. Beyond modern applications, they will also leverage the cloud for business continuity, and once they begin to see the value and understand cloud architectures better, they will start pulling together strategies that lean in closer to mission-critical applications.

3. IT complexity is still a challenge: While digital transformation helps organizations become more agile, flexible and efficient, the challenge of increased IT complexity persists. Nearly two-thirds of respondents said their organizations IT environment is more complex than two years ago. Moreover, digitally mature organizations were 3x more likely than those with no digital transformation initiatives to say IT is significantly more complex today.

4. COVID-19 is impacting tech spend: If anything, the unprecedented social-distancing requirements ushered in this year have reinforced the value of technology as a means to maintain operations and support a remote workforce. In fact, 60% of respondents believe that COVID-19 will make their organization more reliant on technology. Many organizations are cutting budgets during the economic downturn brought on by the pandemic, mainly by postponing projects or renegotiating vendor contracts. However, technology is, for the most part, escaping the chopping board. While one in three organizations plan to reduce their original planned tech spend for this year, the majority see no change (41%) or plan to increase their tech budget (23%). Interestingly, increased use of cloud applications and/or infrastructure is a top strategy for cost containment – 84% said they have already implemented this or plan to as a cost reduction measure.

88%

Of digitally mature organizations are using public cloud vs. just 56% of those that aren’t on the roadmap.

How organizations can get on the map to digital maturity

Some of the fastest growing companies today, such as Zoom, Alphabet, Facebook and Netflix were founded less than 25 years ago.[iii] In our research, we found that young, digital-native companies were more likely to have a cloud-first approach. So how can businesses who are not currently on the roadmap move toward digital transformation maturity?

  • Align your organization around a common vision and goal: One way to do this is forming a center of excellence (COE) that brings IT and line of business teams together to identify strategic business processes and customer engagement initiatives that can leverage modern technology.
  • Ensure executive sponsorship: IT and business leaders can help identify areas of the business that can benefit from digital transformation and leverage key relationships with technology providers. Executives can see the bigger picture and have the ability to map goals, legacy IT systems and emerging technologies to help accelerate digital transformation initiatives.
  • Bring the right expertise: IT staff or partners that are trained and certified on modern cloud services and application architectures can help create and execute on a vision, as well as facilitate organizational openness toward embracing modern cloud services. The inclusion of cloud architectures enables businesses to bridge existing IT services with agile cloud services.

To learn more, watch the webinar

You may also be interested in reading the ESG Hybrid Cloud Trends and Strategies E-Book and downloading the infographic of Key Trends Influencing How Businesses Build for the Cloud.

 

[i] Enterprise Strategy Group, “ESG Research Report: 2020 Technology Spending Intentions Survey,” by Bill Lundell, February 18, 2020.

[ii] Enterprise Strategy Group, “ESG Research Report: The Impact of the COVID-19 Pandemic on Remote Work, 2020 IT Spending, and Future Tech Strategies,” by Bill Lundell, June 16, 2020

[iii] Investors.com, Fastest-Growing Companies: Zoom, Netflix, Amazon Among Stocks Expecting Up To 593% Growth In 2020, Aug 2020.

60% of respondents believe that COVID-19 will make their organization more reliant on technology
Mark Bowker
Mark Bowker Guest Author: Senior Analyst with Enterprise Strategy Group