2021 Budget Predictions
Overall, 2021 budgets don't look too bad
If the soothsayers are right (and given 2020, that’s a big 'If'), the most IT shops will have about the same amount of money to work with in 2021.
With 2021 just around the corner, it's time for another round of predictions about what the year will bring. Of course, if 2020 is any guide, then many prognosticators will miss the mark. But, barring any massive disruptions like those wrought by COVID-19, it's always worth noting where the trend lines are headed.
Since I already addressed some of the COVID-19-induced tech trends, such as work-from-home, that will continue to play out in 2021, I've decided to follow the money for this article. Regardless of what cool tech is just around the corner (IoT, 5G, robotic process automation, AI/ML, etc.) it all takes money to buy, provision, manage, and operate.
So far the consensus is mixed. Some say IT budgets will decrease, but not dramatically, while other analysis points to flat or even improving budgets.
According to the IT research firm Forrester, CIOs will see a net budget decrease of about 0.4% in 2021. While this may not sound like much, it comes on top of a 2020 budget contraction of 2.5%. Going into 2021, that means most CIOs will see a net reduction year over year of 2.9%, which is more significant.
But there also is nuance in Forrester's forecast. Many industries have faired quite well during COVID-19. Cloud providers, healthcare, computer hardware manufacturers, streaming services, delivery companies, ecommerce vendors, telehealth and teleconferencing suppliers, for example, have all experienced a surge in demand for their products and services.
The industries that got crushed by the pandemic such as airlines, travel, restaurants, entertainment, and leisure only make up about 10% of overall tech spending, wrote Forrester's Andrew Bartels, vice president and principal analyst, in a research note about his report, US Tech Market Outlook For 2021: After The Election. That means the impact these industries will have on average budget cuts or increases going into 2021 will be limited.
"Other industries like financial services and insurance, media and information, and professional services that are big buyers of technology were barely or only lightly touched," he wrote in his report. "Indeed, the economic stabilization program and federal reserve easing provided enough support to keep the downturn in travel, entertainment, leisure, restaurants, and other devastated sectors from spreading to the rest of the us economy."
Bartels predicts healthcare, pharmaceuticals, and high tech will see three-to-five percent budget increases in 2021.
A Little Rosier Picture
Unlike Forrester, IT research and consulting firm Gartner projects a modest funding increase of 2.0% for most CIOs in 2021. This is being driven by boards of directors allocating more money for the digital innovation strategies that have seen them through the pandemic.
"At top organizations, CIOs face fewer constraints, with 28% saying that they have secured additional funding," Gartner said in a Smarter With Gartner blog post. "The investment makes sense, as organizational leaders intend to spend more resources more rapidly on digital acceleration to better adapt to the changing economic conditions caused by the pandemic."
Gartner also is projecting a 4% increase in worldwide IT spending in 2021, for a total of $3.75 trillion. But, because of a 5.4% decrease in 2020 IT spending compared to 2019, the projected spending surge will still be less than what was spent in 2019, which stands at $3.82 trillion.
Industry trade association CompTIA, split the difference between Forrester and Gartner with their predictions. They state that while the pandemic created a "budgetary shock wave" most IT budgets will not change in 2021. Only 17% percent of respondents to the budget survey highlighted in their IT Industry Outlook 2021 said they expect their budgets to be cut, 41% expected no change, while the remainder anticipate more money to work with in 2021.
"The budget tale for 2021 has two sides," the report states. "On one hand, IT pros already felt like budgets were being strained, and that situation doesn’t seem to be improving. On the other hand, the silver lining is that most budgets aren’t getting cut, even in the face of austerity measures born out of crisis."
In a special report on budgets, tech publisher ZDNet was a bit more pessimistic. According to a recent reader poll, 62% of respondents said they expect budget cuts. Where CIOs are expected to spend money also is changing. According to the survey, "security (17%) and cloud services (16%) remain top IT budget priorities, but remote technology that enables employees to work from home will definitely gain traction in 2021, as 13% of respondents ranked it a top priority."
Almost one in five respondents said their IT staff will be working form home on a permanent basis going forward.
A View from the Trenches
In the fall of 2020, I interviewed 12 CIOs of organizations large and small. A big part of those conversations focused on how digital transformation is helping organizations survive COVID-19. Every CIO expressed similar sentiments: that digital transformation, in all its forms, but particularly cloud, was critical to managing the worst days of the COVID-19 meltdown and, now, moving beyond it.
Going forward, these efforts will not simply be set aside in favor of the way things used to be. Telehealth, delivery services, mobile, work-from-home, teleconferencing, Internet of Things (IoT), the move to Agile and DevOps and the like, are all experiencing wide adoption and acceptance regardless of industry or vertical. Likewise, operational efficiency measures put in place to streamline and digitize operations will not be cast off either.
What all of these efforts (and many others in the pipeline) have in common is the need for ongoing funding. As these initiatives move through the process of first becoming a project, then a product or service and, finally, into production, every CIO I spoke with agreed that to maintain the gains of 2020's digital transformation surge will require more budget, not less.
These funds may come from the top in the form of new budget, as Gartner predicts, or they may come from other areas of the IT budget as dollars saved by shuttering underperforming applications, renegotiating with vendors, shutting down unused servers and data centers and the like, frees up capital to fund digital transformation efforts into 2021 and beyond.
While this is no guarantee that your IT department will have more resources to work with in 2021, it bodes well for most—as do all of these predictions. Given what could have happened had unemployment remained near or at the 14% mark set in April, going into 2021 with a few dollars more or less to work with, should not keep any organization from exiting the year a little stronger and a little wiser.