Technology | Media | Telecommunications

Monday, March 27, 2017

LoB Spending on IT will Reach $609 Billion in 2017

In North America, more CEOs encourage their whole organization to embrace applying business technology for commercial advancement and digital growth. Traditional IT vendors are responding by exploring relationships with their customer's CIO, CTO and/or Chief Digital Officer (CDO).

Worldwide corporate IT spending funded by Line of Business (LoB) units will reach $609 billion in 2017 -- that's an increase of 5.9 percent over 2016, according to the latest market study by International Data Corporation (IDC). They also forecast that LoB spending will achieve a compound annual growth rate (CAGR) of 5.9 percent over the 2015-2020 forecast period.

In comparison, technology spending by IT buyers is forecast to have a five-year CAGR of 2.3 percent. By 2020, IDC expects LoB led technology spending to be nearly equal to that of the IT organization. Moreover, the trend is gaining momentum across the globe.

Why LoB Leadership of IT is Accelerating

"The Innovation Accelerators have put the line of business units in the frontline of the digital transformation and have forced them to work either alone with the ecosystem outside of the IT organization as 'shadow IT' or in closer collaboration with the IT department than ever before," said Naoko Iwamoto, senior market analyst at IDC.

Although some technology categories are dominated by IT buyer spending, most involve outlays from both IT and the business units. For example, worldwide IT spending on servers, storage, and network equipment is forecast to total $114.1 billion this year, while LoB spending on these items will total $52.9 billion.

However, IT is not the primary source of funding for all hardware purchases. Business unit spending on PCs, monitors, mobile phones, printers, and tablets will total $83.8 billion worldwide this year compared to $76.2 billion spent by the IT department. And line of business buyers will spend more on software applications in 2017 ($150.7 billion) than IT buyers ($64.7 billion).

The technology categories that will see the most spending from LoB buyers in 2017 will be applications ($150.7 billion), project-oriented services ($120.3 billion), and outsourcing ($70.3 billion).

The categories that will receive the most spending from IT buyers this year will be outsourcing ($149.2 billion), project-oriented services ($82.2 billion), and support and training ($79.8 billion).

Combined IT-LoB purchases of outsourcing and project-oriented services ($422 billion) will represent nearly one third of all technology spending worldwide in 2017. The technology categories that will see the fastest growth in spending over the 2015-2020 forecast period are tablets (16.2 percent CAGR for IT and LoB purchases combined) and midrange enterprise servers (14.7 percent combined CAGR). LoB buyers will also continue to invest aggressively in software applications and application development and deployment (8.5 and 9.3 percent CAGRs, respectively).

In 2017, IDC expects LoB technology spending to be larger than IT organization spending in five industries: discrete manufacturing, healthcare, media, personal and consumer services, and securities and investment services.

Outlook for LoB Industry Spending Growth

By 2020, this number is forecast to grow to nine as the insurance, process manufacturing, professional services, and retail industries see LoB purchases move ahead of IT purchases. The industries with the fastest growth in LoB spending are professional services (6.9 percent CAGR), healthcare (6.6 percent), and banking (6.5 percent).

On a geographic basis, the IT organization will be the largest source of technology spending throughout the forecast in all but four countries: the United States, Canada, Saudi Arabia, and the United Arab Emirates.

And like the industry trend, LoB spending is forecast to grow at a faster rate than IT-led technology spending in nearly every country. The countries that will experience the fastest LoB spending growth include Indonesia and the Philippines (each with a 12.2 percent CAGR), Argentina (11.1 percent CAGR), Peru (8.7 percent CAGR), and India (8.4 percent CAGR).

"On average, U.S. line of business will fund 62 percent of their technology purchases in 2017. Looking to increase productivity and reduce organizational costs, IDC expects supply chain, human resources, and sales executives will fund the largest share of their companies' technology purchases over the forecast period," said Eileen Smith, program director at IDC.