With modest GDP growth and stagnant budgets, organizations globally will find it necessary to reallocate funds from mature areas to support IT investments, according to Boston Consulting Group’s Seventh IT Spending Pulse Survey.

Though cloud and security remain key priorities, generative AI (GenAI) interest is taking the spotlight as companies strive for productivity improvements, the report stated.

GenAI investment is expected to grow 30 percent, with leaders from companies with high GenAI maturity anticipating their return on investment will be three times higher over the next three years than companies with little or no adoption of the technology, according to the new report released today.

The report, titled “IT Spending Pulse: As GenAI Investment Grows, Other IT Projects Get Squeezed,” is based on a joint survey with GLG, conducted in Q1 2024. Insights from 330 IT buyers at the director level or higher, across various industries, were surveyed. Of the respondents, 66 percent are from North America and 34 percent from Europe. Large and midsize companies, with 60 percent of respondents from large enterprises and 40 percent from midsize firms, were the focus.

“The emergence of GenAI has made it imperative for many companies to adapt,” Clark O’Niell, a managing director and partner at BCG and a coauthor of the report. “Successful companies will be those that manage a difficult balancing act: allocating IT budgets to keep pace with GenAI while maintaining adequate funding for essential day-to-day operations.”

IT budgets are experiencing modest growth, increasing by 3.2 percent in 2023 from the previous year and rising to 3.3 percent in 2024.

Survey respondents gave equal importance to cost control and growth, with 54 percent indicating that each is a top-three priority.

Since the previous IT Spending Pulse survey in the third quarter of 2023, growth increased in importance by 5 percent while cost as a priority decreased 2 percent.

Another top priority is security and digital transformation, with 61 percent and 60 percent, respectively, rating these as top-three priorities.

“Leaders are intent on directing their spending toward growth areas deemed high-impact and high-necessity, including artificial intelligence (AI) and machine learning (ML) (with a 30 percent net spend increase), security infrastructure (27 percent), cloud services (30 percent), and analytics (18 percent),” the report stated.

The largest net spend decreases are anticipated to occur in server infrastructure (24 percent) and devices (16 percent).

GenAI Maturity by Industry and Geography

The report’s authors developed a GenAI maturity index to assess where companies currently land in their development.

Based on the level of implementation across 10 business functions, companies were grouped into four categories: little to no adoption, low maturity, mid maturity and high maturity.

Only about 20 percent of companies have little or no GenAI adoption, down from about 24 percent in Q3 2023.

The report found that although the percentage of companies with high maturity adoption has stayed constant (~12 percent), the percentage of mid-maturity companies jumped from ~18 percent to ~27 percent.

Tech companies are at the forefront, with 62 percent qualifying as mid or high maturity, followed by the banking, retail, industrial goods, and health care industries, where 32 percent to 39 percent of companies have reached similar levels of maturity.

Lagging tech-adopting industries include: energy, travel and tourism, and insurance, each with at least 40 percent of companies showing little to no adoption of GenAI.

Geographic location plays a lesser role in GenAI adoption, the report found.

Adoption rates are consistent in North America and Europe, with around 40 percent of companies achieving mid to high maturity levels.

Adoption is slightly higher in Asia, with 45 percent of companies reaching these maturity stages.

The percentage of companies with minimal or no GenAI adoption is lower in Asia at 16 percent, compared with 18 percent in North America and 23 percent in Europe, despite recent regulatory developments around GenAI in Europe.

This year’s survey was the first to include findings from the Asia-Pacific (APAC) region. The APAC findings were highlighted separately since there was no 2023 data available for comparison.

IT buyers in APAC project a 6-7 percent increase in IT spending for 2024, compared with 3.3 percent in North America and Europe, focusing on digital transformation.

APAC companies see significant value in GenAI, with 25 percent qualifying as high maturity and only 16 percent with little to no adoption, compared with 13 percent and 11 percent, and 18 percent and 23 percent in North America and Europe, respectively.

Companies With Higher GenAI Maturity Poised for Future Returns

Companies with high GenAI maturity estimate ROI three times higher over the next three years, compared with companies with little to no GenAI adoption, the data showed.

Thirty-eight percent of high maturity companies expect an ROI of 20 to 30 percent, and 3 percent expect more.

By comparison, only about one-third as many companies with low to mid-level GenAI maturity anticipate returns of 20 to 30 percent, yet twice as many expect more than 30 percent returns.

Another indication that GenAI investments are yielding positive outcomes is the willingness of companies to spend beyond their allocated budgets.

In 2023, companies initially projected that approximately 4 percent of their IT budgets would be allocated to GenAI, but actual spending reached about 4.5 percent.

Looking ahead to 2024, the average allocation for GenAI is set to increase to 4.7 percent, with forecasts predicting a substantial 60 percent growth in the next three years, raising the share to 7.6 percent by 2027.

Growth-focused companies say they will increase their budgets 15 percent more than cost-focused companies (7.9 percent versus 7.1 percent of overall IT budgets), according to the report.

Friction Points Inhibiting IT Investment and Implementation

The leading barrier to GenAI adoption, according to survey respondents, is the immaturity of GenAI technology, which was cited as a challenge by 43 percent of high maturity, 36 percent of mid maturity, 38 percent of low maturity, and 50 percent of companies with little or no maturity.

Furthermore, about 30 percent of this last group have no plans to implement GenAI technology over the next three years.

Among high maturity companies, the data showed other areas causing implementation challenges include data risks, legal risks and inadequate training, which have increased 8 percent, 10 percent, and 21 percent, respectively, since the Q3 2023 survey.

“Despite the justifiable excitement surrounding GenAI, IT leaders must articulate a clear, strategic plan to garner CIO support, as mere hype won’t suffice in today’s tough budgetary environment,” said Federico Fabbri, a managing director and partner at BCG and a coauthor of the report. “CIOs should adopt a systemic approach to IT investment request, including planning adequate resources for success, asking for a clear business case and how leaders plan to measure outcomes, and ensuring vendor support.”

Download the publication here:
https://www.bcg.com/publications/2024/it-spending-pulse-as-genai-investment-grows-other-it-projects-get-squeezed