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Shift to Strategic Re-Investment of IT Budgets

Enterprise IT is no longer a cost center. It is a strategic enabler of business growth. More senior executives are realigning their IT budgets to focus on growth initiatives. By reinvesting IT budget savings, they can ensure that their organizations are well-positioned to succeed in the future.

Growth remains the top strategic business priority for both CFOs and CEOs, according to the latest worldwide market study by Gartner.

Forty-five percent of CEOs surveyed ranked growth in their top 3 strategic priorities, down from 53 percent in 2022, while 62 percent of CFOs put it in their top 3 -- that's up from 59 percent in 2022.

Enterprise Digital Technology Market Development 

While CFOs and CEOs agree on growth as their top priority, their emphasis on this and other priorities differ, according to the Gartner survey of CEOs, CFOs, and other senior executive business leaders.

For example, the CFOs’ second top priority is corporate action such as M&A and restructuring (41 percent), which by comparison ranks fourth for CEOs (27 percent).

"Balancing future growth investments and CEO expectations, while still tightly managing cost and cashflow, is the tightrope CFOs must walk in the back half of 2023," said Alexander Bant, a chief of research at Gartner.

The top questions CFO should be educating the CEOs and the board of directors on as the business cycle begin to turn more positive include: How should we sequence funding for organic and inorganic growth bets? How best do we secure capital? What does it look like when we model out the impact on margin and return on invested capital?

When asked which new Business Technology will most significantly impact their industry over the next three years, both CFOs and CEOs named artificial Intelligence (AI) as their top pick.

For CFOs, this is especially notable because they likely do not have much direct experience with AI yet, given that 80 percent of finance functions using AI just started in the past two years.

"Five forces are driving CFOs and CEOs to prioritize conversations about AI in the third quarter. First, boards and CEOs expect C-suite leaders to protect the organization while driving broad use case adoption," said Bant.

Second, customers continue to leverage Generative AI in their daily life, moving their expectations for user experience. Third, employees are concerned about job loss yet may eventually leave organizations where they can’t fully leverage Generative AI.

Fourth, regulators expect all organizations and their leaders to comply with responsible Generative AI regulations. Lastly, investors expect new sources of growth and much better margins, placing pressure on leaders to deliver results.

According to the Gartner analysis, CFOs and CEOs face concerns about the effects of inflation and a potential recession, so they're pursuing options beyond the typical approach of raising prices, with CFOs joining CEOs in demonstrating a new open-mindedness towards other tactics.

A large proportion of both CFOs (84 percent) and CEOs (68 percent) rank inflation as one of their top three most damaging factors impacting the outlook of their business. Raising prices has been a go-to tactic, but many CFOs are realizing they need to expand that playbook.

There was an 11-percentage point drop relative to last year in the share of CFOs who cited that increasing prices was one of their top two actions to respond to inflation, driven at least in part by signs that customers are tiring from consistent price rises.

Outlook for Strategic Re-Investment of IT Budgets

"Rising rates are forcing more customer price sensitivity, and CFOs are less able to pass pricing on to their customers," concluded Bant. "We see CFOs asking teams the tough questions about how they will use resources and headcount even more efficiently in the remainder of 2023 and into 2024."

Moreover, with IT budgeting right around the corner, CFOs will attempt to force higher levels of productivity by clawing back resources while asking their CIO to achieve more innovation.

That said, I believe this is where CIOs can optimize their IT spend by replacing high-cost legacy IT systems, and significantly reduce ongoing telecommunications service charges (typically the largest IT budget category) with the deployment of modern networking technologies like SD-WAN and SASE that support remote working models.

Furthermore, I anticipate we'll see more forward-thinking organizations reporting productivity improvement from their Generative AI applications as practical use cases emerge. For example, B2B SaaS marketing applications have proven to be effective at driving net-new digital business growth.

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