IT services spending signals major role change for CIOs ahead

Analyst firm Gartner has released its 2024 worldwide IT spending forecast, and the topline is eyepopping: Overall IT expenditures are projected to grow 6.8% this year to a hair under $5 trillion. 

That growth more than doubles what the firm pegs as 2023’s growth rate (3.3%), doldrums Gartner attributes not to macroeconomic forces but largely to what it calls “change fatigue among CIOs” — that is, IT leaders’ hesitance to sign new contracts or commit to long-term initiatives. 

But the storyline CIOs should note from this year’s spending forecast is not about overall volume or uptick, or even whether generative AI is behind this year’s perky numbers (it isn’t). It’s about how IT services as a category is rising to become the No. 1 spending segment for the first time ever — a top spot Gartner believes it won’t relinquish in the foreseeable future — with major consequences for the way CIOs work.

And that’s because the ongoing rise of IT services, according to John-David Lovelock, distinguished VP analyst at Gartner, lays bare an evolution in the value proposition of internal IT and the role of the CIO that may not yet be evident to those CIOs who believe the past is prologue for solving their current problems, staffing in particular.

Rent vs. buy

Breaking down its projections, Gartner sees IT services spending increasing 8.7% in 2024, second only to software, at 12.7%, another category for which the firm sees no future plateau. Gartner forecasts software to overtake the near stagnant communications services sector for the No. 2 IT spending slot by 2028. 

The firm also expects a healthy 7.5% increase in data center systems spending, demonstrating an uptick for on-premises strategies buoyed in part by ongoing scrutiny of cloud costs and returns on cloud investments among IT leaders. This has also proved to be a contributing factor to what Gartner’s Lovelock calls “the cloud slowdown,” in reference to reduced growth rates for cloud spend, which is still expected to rise by a robust 19% in 2024.

But the evolution in IT services spend, with IaaS and business process services growing the fastest and data center and client device support shrinking, underscores an ongoing shift in favor of renting what you might otherwise buy.

One interesting facet of this rent vs. buy storyline is the talent equation. According to Lovelock, the average increase across industries for internal IT talent spend is around 3%. And with salary growth expectations pegged closer to 6%, the only conclusion Lovelock can draw is: “Overall, [CIOs] are spending more money every year on fewer employees. They did it last year; we’re projecting them to do it this year; in fact, we’re projecting basically the same chart for the next five years,” he said in a webinar on the forecast findings.

This resulting talent leakage from enterprise IT payrolls prompts the question: Where are these IT pros going?

Lovelock believes he has the answer: Whereas IT services firms have gotten their post-pandemic voluntary attrition rates (“The Great Resignation”) back below their long-term average of 18%, according to Gartner’s research, CIOs have not fared as well.

“CIOs have not had that reduction in attrition rate. They are still losing employees to IT services firms. They still have higher vacancy rates than they like. They still have more open positions than they would like,” Lovelock said. “In fact, part of the slowdown we saw in 2023 was about, Where’s the staff going to be that will do all this work?”

Outsourcing is in again

Increasingly, the answer appears to be that those staff will not be on the enterprise payroll, Lovelock contends.

Across nearly every industry, Gartner reports that CIO spending growth rates for application implementation and managed services and for infrastructure implementation and managed services will eclipse that of internal IT talent spending growth (that 3% noted above) for 2024 and the years ahead.  

“There is this shift going on between labor moving from CIOs to the IT services firms,” Lovelock said, and with managed services providers increasingly coming in to take on commoditized roles, Gartner does not see the discrepancies in these growth rates changing anytime soon, especially with nearly 60% of CIO-employed IT pros actively looking for another role, according to the firm.

But even the bumps in managed services reliance pale in comparison to the spending increases expected for consultants, according to Gartner, which predicts 10% to 15% spending growth on consulting for IT work across most every vertical.

And with the same chart projected for the next five years, what’s the end game over time? “More consultants than people in every industry that we are tracking,” Lovelock said.

This is where much of the highly specialized but hard-to-hire talent needs will likely be met for most CIOs, underscoring a shift in role already under way for many IT chiefs today.

Orchestration on top

“This evolution in what CIOs do, the value proposition they bring to the company, is evident in the long-term playout. But it is not yet as evident to the CIOs themselves,” Lovelock said. He sees CIOs still thinking they are riding the same talent waves of the past, facing a temporary problem that they will solve: that their staff will come back, that hiring will resume, that attrition rates will decline, and that they will be able to attract the skills they need at prices they can afford.

“It doesn’t look like they will ever be able to do that. There are too many things IT staff with these key resources and skills are looking for that are outside of the CIO’s control to deliver,” he said.

With increasing reliance on IT services and consulting to deliver outcomes ranging from commoditized customer support to differentiating generative AI implementations, the CIO role may soon become less about being that one-stop shop for business support, overseeing project and products developed in-house, and more about weaving together myriad services undertaken by an increasingly heterogeneous mix of talent sources, predominantly beyond the CIO’s direct purview.

Such a shift will continue to favor those CIOs astute at developing strategic partnerships, establishing a business-critical agenda, and not shying away from the challenge of change. In short, the orchestrator-in-chiefs.

“This changeover is something that’s going to start being much more evident in 2024 and start to become critical in 2025,” Lovelock said.

Assuming he’s right, it might be high time to get on it.