Gartner's IT Spending Forecast for 2024: With IT services poised to account for the majority of IT spending, it's time for CIOs to recognize that their value proposition is undergoing a significant transformation.
The Gartner analysis firm released its forecast for global IT spending in 2024, and the result is surprising: overall IT spending is expected to grow 6.81% this year, to less than US$5 trillion.
This growth more than doubles what the company considers the 2023 growth rate (3.3%), a stagnation that Gartner attributes not to macroeconomic forces, but largely to what it calls "change fatigue among CIOs"—that is, the hesitation of IT leaders to sign new contracts or commit to long-term initiatives.
But the narrative that CIOs should be watching in this year's spending forecast isn't about volume or overall growth, or even whether generative AI is behind this year's encouraging numbers (it isn't). It's about how the IT services category is growing to become the number 1 spending segment for the first time, a prominent position that Gartner believes it won't relinquish anytime soon, with major consequences for how CIOs work.
This is because the continued growth of IT services, according to John-David Lovelock, vice president analyst at Gartner, reveals an evolution in the value proposition of internal IT and in the role of the CIO that may not yet be evident to CIOs who believe that the past is the prologue to solving their current problems, particularly with regard to personnel.
Renting vs. buying
Analyzing its projections, Gartner predicts that spending on IT services will increase by 8.71 Tbp in 2024, second only to software, With 12.7%, another category for which the company sees no future growth. Gartner predicts that software will overtake the nearly stagnant communications services sector and occupy second place in IT spending by 2028.
The company also expects a healthy increase of 7.5% in spending on systems. data center, demonstrating an increase in local strategies, driven in part by ongoing scrutiny of cloud costs and return on investment among IT leaders. This has also proven to be a contributing factor to what Gartner's Lovelock calls "the cloud slowdown," referring to reduced growth rates in cloud spending, which are still expected to increase robustly by 19% in 2024.
But the evolution in IT service spending, with IaaS and business process services growing faster and support for data centers and customer devices declining, underscores a continuing shift in favor of renting what you might otherwise buy.
An interesting part of this rent-versus-buy story is the talent equation. According to Lovelock, the average increase across sectors in spending on internal IT talent is around 3%. And with salary growth expectations nearing 6%, the only conclusion Lovelock can draw is: “Overall, CIOs are spending more money every year with fewer employees. They did it last year; we’re projecting they’ll do it this year; in fact, we’re projecting basically the same graph for the next five years,” he said in a webinar about the forecast results.
This brain drain resulting from companies' IT payrolls raises the question: where are these IT professionals going?
Lovelock believes he has the answer: while IT services companies have experienced post-pandemic voluntary attrition rates (“The Great Resignation”) below the long-term average of 18%, according to Gartner research, CIOs haven't fared as well.
“CIOs haven’t seen that reduction in attrition rates. They’re still losing employees to IT service companies. They still have more open positions than they’d like,” Lovelock said. “In fact, part of the slowdown we saw in 2023 was about: where will the team be that will do all this work?”
Outsourcing is back.
Increasingly, the answer seems to be that these people will not be on the company's payroll, says Lovelock.
In nearly every sector, Gartner reports that the growth rates of CIO spending on managed application and service implementation and managed infrastructure and service implementation will eclipse the growth in spending on internal IT talent (the 3% mentioned above) in 2024 and beyond.
“There is an ongoing shift in work moving from CIOs to IT service companies,” said Lovelock, and with managed service providers increasingly taking on commoditized functions, Gartner doesn’t see the discrepancies in these growth rates changing anytime soon, especially with nearly 60% of IT professionals employed by CIOs actively seeking another role, according to the firm.
But even the bumps in reliance on managed services are insignificant compared to the expected increases in spending for consultants, according to Gartner, which forecasts growth of 10% to 15% in consulting spending for IT work across nearly all verticals.
And with the same graph projected for the next five years, what will the end result be over time? "More consultants than people in all the sectors we monitor," said Lovelock.
This is where many of the needs for highly specialized, but difficult-to-recruit talent will likely be met by most CIOs, underscoring a role shift already underway for many IT leaders today.
The Rise of Generative AI and the Future of IT Spending
Although generative artificial intelligence will not be the primary driver of global spending in 2024, it represents a crucial inflection point. Companies are increasingly exploring the potential of artificial intelligence to optimize operations, drive innovation, and improve customer experience. This is reflected in IT investments, which, according to Gartner, are expected to continue growing in the coming years.
According to Gartner, global IT spending is expected to grow significantly, representing a substantial increase compared to previous years. This growth is driven by the need for companies to adapt to digital transformation and remain competitive in a constantly evolving market.
The IT services expense segment is becoming increasingly dominant, reflecting the trend toward outsourcing and the search for external expertise. This shift requires CIOs to rethink their strategies and focus on orchestrating services and strategic partnerships.
Challenges and Opportunities in the Short Term
Despite optimistic prospects, CIOs face significant challenges in the short term. CIO resistance to change and difficulty in attracting and retaining talent are obstacles that need to be overcome. Furthermore, the increasing complexity of the technological landscape demands a more strategic and collaborative approach.
However, these challenges also represent opportunities for CIOs who are willing to embrace change and innovate. Those who manage to build strong partnerships, invest in new technologies, and develop a culture of continuous learning will be well-positioned to lead the digital transformation of their companies.
The Future of IT: A Vision by John-David Lovelock
As John-David Lovelock mentioned, the evolution of the CIO role is inevitable. The growing reliance on IT services and consulting requires IT leaders to become strategic orchestrators, capable of uniting different sources of talent and driving innovation.
“This evolution in what CIOs do, in the value proposition they bring to the company, is evident in the long term. But it is not yet so evident to the CIOs themselves,” said Lovelock.
In short, the future of IT will be shaped by collaboration, innovation, and adaptation. CIOs who are willing to embrace change and build strategic partnerships will be well-positioned to lead their companies' digital transformation and drive long-term success.
Orchestration at the top
“This evolution in what CIOs do, in the value proposition they bring to the company, is evident in the long term. But it’s not yet so evident to the CIOs themselves,” said Lovelock. He sees CIOs still thinking they are riding the same waves of talent from the past, facing a temporary problem that they will solve: that their team will return, that hiring will resume, that attrition rates will decrease, and that they will be able to attract the skills they need at affordable prices.
“"It doesn't seem like they'll be able to do that. There are many things that the IT team with those essential resources and skills is looking for that are outside the CIO's control," he said.
With the growing reliance on IT services and consulting to deliver results ranging from commoditized customer support to differentiated implementations of Generative AI, The role of the CIO may soon become less about being a one-stop shop for business support, overseeing internally developed projects and products, and more about uniting a myriad of services performed by an increasingly heterogeneous mix of talent sources, predominantly outside the direct reach of the CIO.
This shift will continue to favor astute CIOs in developing strategic partnerships, establishing a critical business agenda, and not shying away from the challenge of change. In short, the chief orchestrators.
“This change is something that will start to become much more evident in 2024 and will become critical in 2025,” said Lovelock.
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Translated by 4Matt Technology, from the original CIO: IT services spending signals major role change for CIOs ahead
