UK tech leaders report a spending increase, as IT blurs into business

Even though 90% of IT leaders in the UK expect an economic downturn, technology spending this year is set to grow at its third fastest rate in over 15 years, and most tech executives expect their budget to rise in 2023, according to the latest Digital Leadership report from recruitment firm Nash Squared (formerly Harvey Nash).

More than half (52%) of IT leaders in the UK polled for the report expect their technology budget to rise, and  56% of UK organisations expect to increase their technology headcount in 2023. Only approximately one in seven believe their budget will fall.

The Nash Squared Digital Leadership Report marks the 24^th year the firm has polled leading CIOs, CTOs and CDOs, with this year’s study finding a surprising uptick in global, European and UK tech spending, as organisations accelerate digital transformation initiatives and adapt to hybrid working.

The report polled 1,783 digital leaders across 87 countries, including 746 in the UK, and discovered that improving operational efficiency, customer experience and developing new products and services are the top three priorities for digital leaders— markedly similar to last year’s findings.

It also suggested, however, that many of those same leaders are yet to feel the pinch from the recession and cost-of-living pressures.

“Economic headwinds are gathering and indicators are turning negative—but despite or even because of this, UK businesses know that investment in technology remains crucial. Both to maximise the efficiency of what they already have and to become more agile and responsive in highly unpredictable conditions, technology is the key enabler,” said Bev White, CEO of Nash Squared.

Tech spend is rising, as lines with business blur

Nash Squared’s report, pointedly, highlights that business and technology spending is becoming increasingly entwined, and how businesses define technology spending is getting hazy.

“What defines ‘technology spend’ is a point of debate,” according to the report, which added that the average IT budget for all respondents was a surprisingly high 7% of organisation revenue. “Most would agree spending on IT infrastructure is technology spend. Most would agree spending on Google adverts is not. But in the middle ground sit applications like customer systems, new technology products and apps. Is even defining it as ‘technology spend’ helpful?”

White believes that the growth in spending can be seen as a lasting impact from Covid-19, which gave CIOs the encouragement “to go faster and further”, in particular accelerating their investments in data and cybersecurity.

Alex Bazin, CTO at legal firm Lewis Silkin LLP, said that the Nash report’s headlines echo what he sees on a “day-to-day basis”, with investment rising at his company—a City firm focused on driving internal efficiencies. “We’ve got to keep the investment even, maybe even especially, through economic downturn,” he said.

Part of this investment, he said, can be attributed ton hybrid and remote working, with Lewis Silkin’s new office in Manchester representing a “significant investment in itself.”

Bazin—who said that ROI timeframes remain relatively unaffected, with most projects needing to deliver value within two years—does however note that the lines between IT and business spending are closing. This potentially muddies the waters, in terms of understanding where tech investment growth is coming from, and the impact it has on more traditional IT budgets.

“It’s hard to draw the line sometimes,” he said, giving the example of library services falling into his remit and budget, as subscription services fall into the realm of data and knowledge sharing. He adds that other industries, such as automotive manufacturing, have the additional complexity of IT/OT (operational technology) convergence and budgets falling between the cracks of technology, product and operations.

Tech executives in a variety of industries agree the lines between spending on IT and other segments of business are blurring. Nadine Thomson, Global CTO at Mediacom, gave one such example at the WPP-owned media agency.

“If you think about product, product doesn’t necessarily always sit in an IT or even in a CTO function,” shes ays. “In my role, I kind of share product…with our chief product officer. So that’s one example of an area where you wouldn’t necessarily see it all on the IT line.”

Business-led tech is on the rise

There has also been a general increase in business-led technology, she notes, highlighting that this would not be cloud hosting or licensing costs, but rather areas like business analysis and product management.

“I wonder if some organisations are starting to think about how they’re accounting for technology more broadly,” she said, adding that budgets are now under ‘more pressure’ than two months ago.

In fact, a lot has changed recently. The Nash Squared survey was based on responses between 20 July and 10 October— chancellor Jeremy Hunt axed most of the so-called ‘mini budget’ seven days later, with now-former UK prime minister Liz Truss relinquishing her role after 10 days, on 20 October. The political tumult has added to general economic uncertainty.

For Scott Petty, the CDIO (chief digital information officer) at Vodafone, the financial uncertainty represents another opportunity for CIOs to drive change through crisis, even if investmenta are more acutely focused on projects which can save energy and drive operational efficiencies.

“So things like investments to save energy, and automation. Anything that can reduce power consumption, suddenly has an amazing business case,” he said on the sidelines of Gartner’s symposium in Barcelona, which ended Thursday. “So you’re seeing a wave of investments in those areas,” he said, pointing to data centre consolidation and cloud migration plans moving from “three-year plans to 18-month plans.”

“Will that continue? It really depends how long the downturn lasts, how long the headwinds are and how big the energy upside is,” Petty said.

AI and RPA cuts as projects get prioritised

Even though CIOs seemingly have yet to feel the impact of economic headwinds, some technologies have already been scaled back.  Although investment remains strong in cloud (67% of executives polled by Nash reported large-scale usage in the UK), companies are cutting back their investments in big data and RPA (robotic process automation).

“As the CIO, you want to make sure that you’re putting things on the board that show real value and help the business transform itself, grow and scale be more productive,” said Nash Squared’s White, adding that organisations are committing to bigger infrastructure projects rather than smaller, and more iterative AI projects which “start out small and then permeate.”

Mediacom’s Thomson expressed surprise at the relative fall from grace for RPA, suggesting that efficiency must be king in financially uncertain times.

“We know that talent is getting harder to get, so cutting back on anything that’s going to drive automation or RPA is a strange decision,” she said.

Lewis Silkin’s Bazin has a similar stance on AI, saying that this suite of technologies is “front and centre” to the company’s ambitions, with “nothing on pause.” In particular, he said the law firm is looking to AI for document discovery to help build legal cases and give advice to clients, as well as for contract analysis, contract automation and fact-checking on case law. “Anything that decouples effort from the equation makes a quick difference, and a rapid ROI,” he said.

Skills gap and diversity progress—but sustainability stalls

Elsewhere in Nash Squared’s report, there was concern over how cost-of-living pressures were having an impact on salary demands and thus recruitment, and frustration with the UK government’s inability to tackle the digital skills divide. But there was promising news for gender diversity: Approximately 28% of new hires are female, with the recruitment firm attributing the slight rise in the number of female leaders (up from 12% to 15% year-on-year) and new hires likely due at least in part to greater flexibility in the workplace.

Thomson, though encouraged by the findings, believes that building diverse teams is an ongoing journey. At Mediacom, she points to a “reasonably diverse” technology team, built over three years through partnerships with the likes of D&I organisation Tech Talent Charter, connections in the CIO-CTO world, and internal schemes like WPP ‘Visible Start’, which gives women an opportunity to come back after a career break. But she believes that developing the company culture, as well as active role modelling, is pivotal to get to a point where word-of-mouth drives diversity and employee retention.

“People recommend or bring in other people. And that’s actually really helpful, because they stick—and they stick because the culture is already there. You’re coming into a welcoming culture.”

Big data analysts, cybersecurity experts and technical architects were the top three job types sought in the UK, according to the report, but rising salaries were a concern, with almost two-thirds of UK leaders saying that the rising cost of living has made salary demands ‘unsustainable’.

Sustainability, as was the case last year, remains somewhat down on the CIO’s priority list. In the UK, while 43% of respondents think technology has a ‘big part to play’ in sustainability, only 22% are using technology to measure their carbon footprint to any great extent.

A fifth of digital leaders polled in the UK (20%) think sustainability had only a ‘negligible or no part to play in 2022’, leading Nash Squared to question if there’s a vacuum in leadership responsibility for sustainability. “We expected to see it playing a greater role than when we measured it last year when in fact it appears little has changed,” the report said. “Do digital leaders have their heads firmly in the sand or is the board not focusing them on this?”

Bazin notes that IT concerns about sustainability could differ widely by sector—a logistics company may, for instance, see a bigger environmental impact from haulage by air or sea than from IT—but believes an altogether bigger challenge is focusing on goals for the year ahead. In the study, most UK leaders cited concerns about a lack of focus on digital innovation (21%), followed by under-resourcing (18%) and prioritising ideas (10%).

“IT has been so busy in innovating core IT for the pandemic, and adapting for the hybrid workplace. But it is really important that business owns business innovation, and IT owns its part of that,” Bazin said, adding that getting the right team and process structures in place is at the top of his agenda.