Are CIOs losing power to business heads in IT spending?

CIO and IT spendingThere is no end to the debate on who – CIOs driven IT organization or heads of businesses — decides the IT spending in an organization?

IDC says LoB (line of business) technology spending will be nearly equal to that of the IT organization by 2020.

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LoB spending on technology will achieve a compound annual growth rate (CAGR) of 5.9 percent over the 2015-2020 forecast period. In comparison, technology spending by IT organization is forecast to have a five-year CAGR of 2.3 percent.

Corporate IT spending funded by non-IT business units will grow 5.9 percent to $609 billion in 2017.

Investment in Internet of Things, Cognitive/AI systems, and 3D Printing, mobility, Cloud, analytics and security has fundamentally increased Line of Business spending on IT.

“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 as shadow IT or in closer collaboration with the IT department than ever before,” said Naoko Iwamoto, senior market analyst with the IDC Japan IT Spending Group.

IDC said joint purchases can be funded by either IT or the functional business unit while “shadow IT” projects are funded from the functional area budget without the knowledge, involvement, or support of the IT department.

Though some technology categories are dominated by IT spending, most involve outlays from both IT and the business units.

IT spending on servers, storage, and network equipment will be $114.1 billion this year, while LoB spending on these items will be $52.9 billion.

IT is not the primary source of funding for all hardware purchases. Business unit spending on PCs, monitors, mobile phones, printers, and tablets will be $83.8 billion this year compared to $76.2 billion spent by the IT department.

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 will be applications ($150.7 billion), project-oriented services ($120.3 billion), and outsourcing ($70.3 billion).

The tech 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 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 applications and application development and deployment (8.5 percent and 9.3 percent CAGRs, respectively).

In 2017, LoB technology spending will be larger than IT organization spending in five industries: discrete manufacturing, healthcare, media, personal and consumer services, and securities and investment services. 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). However, LoB technology spending is forecast to grow faster than that of the IT organization in all 16 industries covered in the spending guide.

The IT organization will be the largest source of technology spending in all but four countries: the United States, Canada, Saudi Arabia, and the United Arab Emirates.

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).