Zero One: Where Are Tech Dollars Going in 2018?
Line-of-business buyers of technology and services need to know where to place their bets this coming year, and Forrester has come up with a cheat sheet.
The cheat sheet shows a tale of two tech budgets. Fast-growing industries will grow their tech budgets by 7 percent to 10 percent, Forrester says. But other industries face challenging market conditions, and so their tech budgets will grow sluggishly if at all.
Here’s the big picture:
“We project the U.S. business and government spending on tech goods, services and staff will reach $1.58 trillion in 2018,” says Forrester vice president and principal analyst Andrew Bartels in the report. “The 5.8 percent growth will be concentrated in the largest categories of tech staff salaries and benefits, tech outsourcing purchases, software, and tech consulting and systems integration services.”
(Tech consulting services in the United States should grow to $296 billion in 2018 from $270 billion this year, while tech outsourcing should grow to $250 billion from $233 billion.)
Drilling a little deeper, the differences in tech budgets among industries are stark.
Chemicals and insurance will claim the biggest growth in tech budgets, growing 11 percent and 10 percent respectively. They’re followed by industrial products, healthcare, education, oil and gas, high-tech, transportation, construction, and financial services, growing at 8 percent or more.
Lesser high-growth industries include wholesale, professional services, and utilities, growing at 6 percent.
Low-growth industries include primary production, consumer products, pharmaceutical, and retail. Bringing up the rear are industries staring at potentially shrinking revenues, such as media and entertainment and government.
Tech budget growth generally falls in line with the specific industry’s economic outlook, but a closer look at an industry reveals unique narratives.
Forrester labels retail a low-growth tech budget industry, but retail will lead spending on business technology, or BT. “Retailers’ tech budgets are heavily tilted toward technologies for sales, ecommerce, marketing, customer service, customer analytics, mobile apps, and supply chain,” Bartels says.
In the high-tech industry, the story of tech budget growth takes years to tell.
High-tech companies will spend 7.2 percent of revenues on technology next year, up from 6.7 percent this year and 6.5 percent in 2016. Prior to these years, though, high-tech companies were spending at a much higher rate.
“High-tech vendors were early adopters of cloud solutions, which is why their tech-to-revenue ratios dropped from the 8 percent to 9 percent levels earlier,” Bartels says. “But now they are starting to experience the downside of cloud, in the form of rising subscription costs.”
For line-of-business tech buyers, the Forrester report offers a benchmark on how much and where to spend on tech. It provides insight into areas of over-spending, under-spending, and spending mix.
For instance, a retailer spending far less on BT in a competitive landscape risks falling behind. Or a hospital spending only 10 percent of its budget on tech outsourcing, while the industry averages 35 percent, should probably be more aggressive in using outsourcing providers, Forrester says.
Tom Kaneshige writes the Zero One blog covering digital transformation, AI, marketing tech and the Internet of Things for line-of-business executives. He is based in Silicon Valley. You can reach him at firstname.lastname@example.org.