As CIOs and IT leaders prepare their digital transformation budgets, they should seek indicators in their companies and global economic factors to judge whether to propose an aggressive or conservative plan.
Early indicators suggest CIOs should hedge their bets in their 2025
planning.
August inflation in the U.S. dipped to 2.5%, the lowest since February 2021, and analysts expect the Fed to drop interest rates soon. However, several risks to the global economy include sticky inflation in Europe, political transitions in the U.S., and isolationist trade policies.
Regarding IT and security, the WSJ reported
6% IT Unemployment
amid overall U.S. job growth, a sign that many organizations aren’t refilling
positions or implementing hiring freezes.
PWC laid off 1,800 people
and is restructuring its technology organization to focus on client services
and gen AI. Intel, IBM, Apple, and Cisco
laid off 27,000 tech workers in August, and 136,000 tech jobs disappeared from more than 420 companies in
2024. One bright side is that Gartner forecasts global information
security spending to grow 15% in 2025.
AI’s impact in 2024
AI was a major IT priority in 2024, impacting talent, operations, and IT
priorities.
- An EY study reports that 82% of tech business leaders plan to increase their AI investment, and 50% anticipate a combination of layoffs and hiring due to artificial intelligence adoption.
- An Augury and IndustryWeek study reports that 90% of manufacturers have between 11% and 50% of AI pilot projects reaching scale at their sites, and 83% said that their company was investing more in AI in 2024 compared to 2023.
- A Rafay study on the pulse of enterprise platform teams reports that 96% cite the importance of providing efficient methods for developing and deploying AI applications, and 83% believe pre-configured AI workspaces with built-in MLOps and LLMOps tooling could save teams over 10% of time monthly.
Mixed economic signals heading into 2025 budget season
“In planning and presenting their budgets, CIOs must overcome a range of
uncertainties, including election years, the state of the economy, AI impacts,
hybrid working, and other factors,” says Massimo Peselli, CRO of global
enterprise and public sector at
Verizon Business.
I remember budgeting as a CIO in 2008-09 during the financial collapse and
back in the late 1990s when I was CTO of a startup and uncertain how much
funding we could raise. In both times, I developed several budgets and
variations depending on financial circumstances.
Today, not only do CIOs need multiple scenarios, there is also a timing
consideration, as some businesses may delay finalizing budgets and spending
well into 2025. Here are five smart ways CIOs can hedge their transformative
investment plans.
Develop transformation leaders
If there’s a downturn, the first places to cut often include consultants,
services, and leadership and development programs. But when there’s a budget
increase and greater business demand for transformation, technology, and AI,
the leadership and development programs are often the last budget items
planned and funded.
Unfortunately, the focus is usually on skill development, which is important
but often not
what holds back the CIO’s transformation and innovation initiatives. CIOs should itemize a budget to develop their extended leadership team to
improve planning, execution, and leading change management efforts on digital
transformation initiatives.
Here’s how CIOs can hedge: Top CIOs never compromise in developing their Digital Trailblazers, but they can get creative in what and how they make investments during tighter budget periods. For example, establishing a book club, hosting workshops, and reinforcing top digital transformation leadership attributes are inexpensive ways to promote lifelong learning without heavy investment.
Leverage relationships to gain commitment
Peselli of Verizon Business suggests, “CIOs can tie technology investment to
business transformation that can help make an organization agile, efficient,
and ready to adjust to political, social, and economic environments.”
Peselli recommends that CIOs do two things:
- Gain internal support not just from business and operational leaders but also from the CFO, CHRO, and CPOs.
- Select a handful of trusted partners who can ideate, design, and execute on the CIO’s goals—the North Star, whose boundaries align the partners to a common objective.
Organizational agility investments such as improving
network performance
and enhancing
hybrid working capabilities
can have quick wins (improved productivity) and longer-term benefits (lower
costs and reduced risks).
Here’s how CIOs can hedge: Business agility comes from investing in
continuously improving digital
transformation core competency practices
such as
agile planning,
DevOps practices, and
change management. A best practice is to align these process improvement investments with the
most strategic priorities.
Plan multiple scenarios, then communicate the strategy
Other leaders also recommend developing multiple budget scenarios.
“In uncertain times, scenario planning is crucial for ensuring technology
investments yield maximum ROI,” says Mike Lee, President and GM at
AND Digital. “CIOs can stay agile in
the face of uncertainty by preparing plans A, B, and C — such as determining
where to allocate capital in a market upturn or downturn. Often, companies
that invest strategically during these periods can potentially gain a 1-2 year
head start on bringing new technological capabilities to market, securing a
significant competitive advantage while others pull back.”
One recommendation is to prioritize
force multiplier investments
that address several business priorities. For example, investing in gen AI
capabilities in marketing and sales has the potential to increase revenue
while improving productivity. Lee of AND Digital recommends
hackathons
as “an efficient means, where cross-functional teams can solve pressing issues
and rapidly prototype solutions that position them ahead of competitors.”
“With our current market volatility and uncertainty, things can change on a
dime,” says Michael Werblun, CEO of
Consulting Solutions. “CIOs
must adopt a more flexible, scenario-based approach to budgeting, with
contingency plans in place for economic and market shifts and the ability to
quickly make modifications accordingly. It’s also increasingly important to
align IT initiatives and spending to business priorities, focusing on projects
that drive efficiency and innovation and enhance customer acquisition and
retention.”
Here's how CIOs can hedge: Focus on developing the business case for
the most promising initiatives, then once executives finalize the business's
strategic goals, select the appropriate initiatives and layer on an updated
digital transformation strategy.
Hedge AI investments with non-negotiable risk reductions
Many companies are investing heavily in AI, though CIOs should consider the
possibility of a slowdown in the near future.
Eight reasons we may already be in an AI bubble
include hype, overinvestment, and skill gaps, and some businesses
discovered that AI usefulness is elusive.
I believe every business needs to make prudent investments in AI. Falling too
far behind in productivity gains, underinvesting in data intelligence
capabilities, and losing out to competitors developing AI-enabled products and
services will likely disrupt lagging businesses in many industries.
There will likely be budget swings, especially if this year’s promising AI
news turns negative in 2025. My question that CIOs should consider is not just
what areas of AI to invest in and how much, but what CIOs should pair with
their AI strategies and investments to reduce business risks.
Here’s one example when using copilots for code generation. “Looking toward
2025, CIOs must recognize that AI code assistants are accelerating the pace of
coding, resulting in an exponential increase in material changes that can
impact software quality, compliance, and security while creating new
vulnerabilities for attackers to exploit,” says Idan Plotnik, co-founder &
CEO of Apiiro. In this rapidly evolving
development landscape, manual processes for security reviews, prioritization,
remediation, and prevention are no longer sustainable.”
A second example requires reviewing third-party service provider opportunities
and risks.
“With the global cost of cyber events rising annually, coupled with a
prevailing reliance on a select few third-party service providers, any one of
whom could trigger a catastrophic market incident upon an operational
disruption, CIOs must transition from a cybersecurity mindset to one of
proactive cyber risk management,” advises Yakir Golan, CEO of
Kovrr. “By leveraging Cyber Risk
Quantification (see
CRQ) models to gain an objective understanding of their organization’s financial
exposure to various loss scenarios, CIOs can optimize their undoubtedly
limited budgets, prioritizing initiatives according to those that will result
in not only the greatest reductions in overall exposure levels but also a
positive ROI, bolstering resiliency amid an increasingly foreboding cyber risk
landscape.”
Here's how CIOs can hedge: One approach is similar to how I recommend
bundling citizen data science and data governance initiatives. Many businesses want the benefits of becoming a data-driven organization
but are slower to invest and commit resources to
proactive data governance. CIOs that bundle these investments and create
agile data teams
have a better chance of addressing both business needs. I recommend taking a
similar approach to AI and related security investments.
Seek force multipliers in app modernizations
One final challenging area is how CIOs budget for app modernizations. It’s
hard delaying investments to upgrade legacy systems or address systems with
technical debt impacting business operations. CIOs are also under pressure to
enable AI capabilities in their primary workflow systems, which often requires
investments to pay for these SaaS features, improve data quality to leverage
in LLMs, and train the organization on using gen AI capabilities.
I’ve never met a CIO with the funding, leadership, skills, and business
support to invest in all their top business priorities. Every budget season,
it’s often a challenging prioritization exercise to decide focus areas,
communicate a strategy, and stay disciplined in allocating resources.
“CIOs should start planning their budgets by examining their current
application stack and areas for cost improvements while ensuring they leverage
new technologies that provide their organizations a competitive advantage,”
says Jason Forget, president and CRO of
Cockroach Labs. “Systems that
need updating should be handled incrementally, prioritized based on business
impact. This will allow leaders to make consistent, attainable progress
without disrupting existing processes or breaking the bank.”
Here's how CIOs can hedge: CIOs hedge by developing a flexible prioritization process and leveraging an agile PMO that characterizes and quantifies initiatives’ benefits along several strategic drivers. This discipline is particularly important when evaluating the applications, infrastructure, and IT operational areas to invest in because the CIO has to answer “why now” with every priority. As executives decide on strategic goals, CIOs can define their strategy, priorities, investment areas, and roadmap, then adjust throughout the year as objectives evolve.
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