Economic Uncertainty is Causing CIOs to Hoard Their IT Budget

Economic Uncertainty is Causing CIOs to Hoard Their IT Budget

The uncertain economic outlook is causing some CIOs to defer spending and push out less-critical projects during the second half of the year. That was one key takeaway from a summer software market update presentation by J.P. Morgan analyst Mark Murphy.

How CIOs balance dwindling budgets

Almost 40% of CIOs surveyed by J.P. Morgan in June said that IT budget planning would include deferring IT purchases in the latter half of 2022, compared to just under 32% who said they’re likely to accelerate their spending.

A similar survey the company conducted found that 48% of Microsoft partners surveyed have seen or expect to see customers constraining their use of software. With more companies encouraging or ordering employees to return to the office, at least for part of the traditional workweek, it’s probably not a surprise that enterprise decision makers who represent the installed base of collaborative software providers Zoom and Citrix are projected to see a decline in spending.

Oracle licensees are really tightening their belts

More surprising, perhaps, is that Murphy’s presentation showed Oracle customers’ IT budget planning included a mere 1% increase in their spending on that company’s products, compared to more than 60% increase in spending for cloud data platform providers Snowflake and Microsoft. This already appears to be affecting Oracle, which recently announced single-digit growth in year-over-year quarterly revenue and more recently reportedly began laying off hundreds of employees.

Oracle, like other providers of perpetual enterprise software licenses, is racing to transform itself into a cloud software company. Where that would leave enterprises who rely on those perpetual licenses remains to be seen, but the J.P. Morgan survey indicates that CIOs who buy those licenses are tightening their belts and planning to make do with what they have.

A slowdown in IT spending was also reflected in an earlier TechCrunch survey noting that 2022 purchasing plans had declined from 8.7% growth expected in December, to 6.7% this past May. “Our research shows that organizational plans to begin new IT projects have stalled since the start of 2022,” TechCrunch reported.

Demand for tech talent is accelerating

The spending slowdown and project deferrals do not appear to be having much impact on the demand for tech talent — the belt tightening is only aggravating the existing shortages. According to TechCrunch, “At the same time, the need for experienced IT personnel has accelerated and hiring demand in the space has reached the highest level we have ever seen.”

Even customers who are quick to move to cloud options often find they need to reshape expectations regarding the level of support they can expect. That can be distressing given the potential failure rate of cloud migrations; according to eWeek, “90% of CIOs have experienced failed or disrupted cloud-based data migration projects. Clearly, this is a massive undertaking that’s littered with hidden pitfalls.”

An alternate support services model may be necessary

As companies transition from traditional products to cloud, organizations not yet ready to make the transition need an alternate support strategy for vendors that cut investment in old product lines and shift resources to newer offerings. Faced with an ongoing talent crunch and uncertain how long they can count on vendor support, CIOs who intend to continue to maximize return on existing IT investments should explore support options from third parties.

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