To thrive amid uncertainty, technology and digital transformation will be key.
The prospect of a global economic downturn, geopolitical uncertainty and talent shortages driven by long-term demographic shifts all weighed on the minds of executives as they responded to our 2023 Key Issues Study.
Executives are looking to technology as they consider how to manage the forces of change: 45% of executives said they are accelerating digital transformation (automation, advanced analytics and modeling) – more than any other response measured, including capital spending and cost reduction programs. The cloud has moved to the forefront as the platform organizations must leverage for agility, growth and transformation. In the study, 42% of enterprises reported having legacy solutions that must be replaced.
But organizational disconnects hold back many companies from achieving the transformation they are targeting. More than one-quarter of study participants across business functions said the inability to successfully transform their business and related functions is of key concern.
Amid unprecedented uncertainty, these are the technology function’s top priorities for the coming year
With the winds of change, priorities have shifted
External business disruptions are forcing technology organizations to reset priorities through a lens of managing and mitigating uncertainties, with the ability to pivot quickly to enable growth in changing markets. Priorities have shifted higher for vendor partner value realization, faster time-to-value for technology-enabled initiatives and enterprise transformation to a digital operating model. On the other hand, some priorities fell in rank, including maximized value from data; matured, industrialized enterprise analytics capability; and effective strategic partnering. For the most part, these drops don’t necessarily mean these priorities are perceived to be less important now. Rather, there are several other competing priorities of increased urgency.
Together, the shifts in priority underscore the importance of becoming digital to provide competitive experiences for customers, partners and employees.
The drop in priority for strategic business partnering is surprising – the function has much work to do to meet expectations
Optimizing processes and skills to enable effective stakeholder partnering is necessary to succeed in technology transformation under the added pressure of inflation and supply disruption. Technology organizations overwhelmingly strive to be perceived as a partner to the business, influencing spend allocation through information technology (IT) expertise and alignment to achieve strategic business objectives. Unfortunately, they fall short of achieving this aspiration, according to The Hackett Group’s benchmarking research. For many organizations, a leap in perception from administrative to strategic partner may require a significant transformation of culture and approach.
Technology head count and budget will increase slightly in 2023 – but it won’t be enough to handle the increased workload
The Key Issues Study confirms and quantifies what technology executives already know: They must continue to find ways to do more with less. In 2023, the technology workload is predicted to increase by about 5%, reflecting the broadening of priorities. But projected increases in head count and operating budget remain minimal – and are smaller than executives expected a year ago. This will create a productivity gap of 1.6% and an efficiency gap of 1.2%.
With complexities of digital transformation and the pace of change, no technology function can do that all by itself. Technology and service partners are more important than ever. Furthermore, technology initiatives must deliver in a timely way to quickly start value realization. But the study shows that technology executives have low confidence in their ability to deliver on two of their top priority objectives: data value and talent realignment.
Enterprise technology spending will grow in 2023 – but at a slower rate than last year
Overall, executives expect enterprise technology spending to increase by 5.2% in 2023, indicating a growing reliance on technology to close gaps in productivity, efficiency and effectiveness. But here, again, growth in technology spending is projected to be slower than last year (7.9%).
Individual business functions will rely on technology to support their own increased workload. But for almost all business functions studied – including finance, human resources (HR) and procurement – growth in technology spending will lag growth in workload.
By applying its expertise to influence function’s IT spend to deliver value faster, the technology function can raise its profile as a business partner.
Companies recognize the benefits of a cloud applications strategy
The cloud has moved to the front as the platform organizations must leverage for agility, growth and transformation. Cloud-based applications have the highest current deployment, surpassing legacy systems for the third year in a row, as well as the highest expected growth rate. Companies recognize the benefit of a cloud applications strategy: 42% have legacy solutions that must be replaced, 38% believe current legacy applications limit agility, and 32% have implemented a cloud-first approach over the past five years. Addressing the cloud involves nuanced decisions about public versus private clouds, and the evaluation of on-premise computing for some workloads and data.
The cloud landscape is changing rapidly
By 2025, nearly one-quarter of companies expect to be 100% in the cloud. This is a significant shift in just two years.
As this takes shape, it will help resolve the high costs of supporting legacy applications. Technology executives need to make sure those savings are redirected to advance strategic priorities.
Some technologies have a head start on cloud migration
Nearly one-third of companies have all analytics and reporting solutions in the cloud today, and nearly one-half report having a mixed environment with some cloud deployment. Transactional and point solutions are not far behind.
Where companies expect to spend in 2023
The Key Issues Study looked at current adoption levels of digital technologies, as well as projected increases in adoption in 2023. Indeed, cloud-based core application suites will lead the charge in 2023, with 33% projected growth in deployment. Executives also expect strong growth in other technologies, including point solutions, business process management and workflow tools, data visualization tools, and advanced analytics.
The study found that some digital and data-related technologies – including cloud-based core application suites, digital workforce enablement tools and data visualization tools – have reached large-scale adoption.
Others – such as advanced analytics and master data management tools – are still largely in the pilot stage. By broadening their deployment, organizations can extract more value. Many enterprise applications for common and industry-specific functions provide extensive analysis capabilities. Thus, companies have an opportunity to wring more value from technologies that are still largely in the pilot stage.
Reallocate time, money and people to the technologies that are meeting expectations today
Enterprise technologies are largely meeting expectations today. Technology executives, therefore, can accelerate value by maximizing use and capabilities of these technologies across the organization.
However, a significant number of respondents said certain technologies – such as advanced analytics – fall short of expectations. To remedy the shortcomings, organizations need more rigor in selection and deployment when expanding beyond pilots or small-scale use.
Value from vendors is mixed
In the Key Issues Study, 15% of respondents said their legacy solutions will not be supported by the software vendor in the next one to three years. In some cases, third parties offer support services for retired applications. Such situations encourage upgrades, migrations to alternatives or consolidation/removal. While software vendors once drove adoption of emerging technologies, only 13% of respondents say their primary artificial intelligence strategy is to enable components in business applications as they are released from technology vendors.
Sharpen your focus for 2023
As economic and other disruptions remain a feature of the outlook for 2023, technology organizations will need to adjust their priorities to deliver on enterprise expectations. Certainly, making sure investments and resources are well aligned with top priorities is critical. Here are several other areas that we believe require full focus of technology executives:
- Drive business value by ensuring strategic organizational alignment of IT initiatives and investments.
- Retain the right IT skills and talent necessary for unlocking the expected value of digital transformation.
- Enable agility by accelerating capabilities for producing timely, actionable, data-driven insights.
- Transform digitally at scale, while improving cybersecurity in a world where state-sponsored cyberattacks are on the rise.
Download the full report to learn more about technology executives’ top priorities for 2023, including securing data and systems, accelerating time-to-value for technology-enabled initiatives, enabling the enterprise transformation to a digital operating model, retaining skills and talent, maximizing value from data, deriving value from vendor partnerships, and more.