Why Thinking About Technical Debt Can Help You Make Better Decisions
IT spend in 2023: What are the real costs?
With forecasts for a financially tight economy—and even the ‘R’ word being whispered quietly in many quarters—corporate number-crunchers are facing some important challenges concerning company spending in 2023. Rising interest rates as a response to global inflation have already led to some pre-emptive budget cuts in many areas, including IT.
But old technology is now leaving businesses vulnerable to attacks from hackers looking to take advantage of superseded legacy systems. Increasingly sophisticated cybercrime gang attacks are on the rise around the world.
I was invited to speak to Mike Loder of Ticker News about what the next two years have in store for organisations, and what they can do to extend the value of their existing technology in a time of budget restrictions. Or, is it time for some to ditch their legacy systems and upgrade?
Here’s my view, as told to Ticker News, on what IT executives need to be mindful of when it comes to spending over the next 12 to 24 months.
IT investment levels will likely be subdued in 2023
Over the pandemic, as companies were forced to focus on short-term IT investments to facilitate remote working and other Covid-related, we saw a shift to working from home and so consumers definitely started spending through more digital channels. What we saw with IT organisations was that they focused on moving some of their business applications to the cloud, which allowed their employees to access the core business systems from anywhere–including home. We also saw IT organisations spending money on their digital apps and their digital front-ends to ensure that the consumer buying experience was up to date.
Due to interest rate rises, global uncertainty surrounding the war in Ukraine (and its effects on inflation) and China emerging from Covid restrictions, organisations had already been thinking long and hard about expenditure. With these factors still having a major influence on business sentiment, I expect spending on IT to plateau and possibly reduce in 2023.
This raises a number of important questions about both the short- and long-term consequences of reducing spending on IT security and relying on legacy systems.
Keep an eye on your technical debt
Decision-making for the short-term can leave you with long-term risks. The biggest risk for that kind of strategy when it comes to IT investments would be an accumulation of what I call “technical debt”—that’s the cost of a future spend that is required by decisions made in the short-term. A classic example of that is upgrading a legacy system, which can cost millions, if not tens of millions of dollars.
A recent Software AG report said that 78% of organisations actually increased technical debt in 2022 and we see that clients are spending upwards of 30% of their IT budgets trying to handle technical debt into the future.
We advise our clients, while they're looking to build new capabilities in their business and through their software and their applications, that they look for a secondary benefit of streamlining or reducing the impact of legacy systems, and potentially even decommissioning some of those systems.
Software is set to see significant growth
A report released by Gartner consulting suggested that global spending on software could increase by 11.3%, making software developers the winners in 2023.
Conversely, we're going to see spending reduce in hardware purchases by about half a percent, and you'll like still see spending in enhancing consumer experience—that is, ensuring that consumers have a really positive buying journey and have a fantastic point-of-sale experience, whether that be digitally or in store.
Customers that have moved their business applications to the cloud over the last couple of years will want to see some return on those investments, and want to see those platforms provide additional functionality and capability for their products and services portfolio.
The three areas that should be on every IT exec’s radar
The three areas I’ve identified that will influence decision-making in 2023 are automation—eliminating waste and creating efficiencies in an organisation; extracting value from data—as businesses collect 1.2b GB of data everyday, and the use of AI and Machine Learning is crucial to that; and security—protecting companies digital assets.
Of course, only time will tell if these forecasts come into fruition, but one truth remains: what are the real long-term costs of short-term thinking and reduced IT spending, and can your business afford to risk it?