IDC: Line of Business Spending Will Catch IT by 2020

Corporate IT spending funded by functional business units will grow faster than spending from central IT departments in 2017, according to updated forecasts from International Data Corp.

Worldwide technology spending by business units will increase 5.9% to $609 billion, according to IDC, which recently updated its Worldwide Semiannual IT Spending Guide: Line of Business. The report quantifies the purchasing power of line of business technology buyers by providing a detailed examination of where funding originates. It also predicts that LOB spending will enjoy compound annual growth of 5.9% between 2015 and 2020.

In comparison, technology spending by central IT buyers is expected to post five-year CAGR of just 2.3%. At those rates, IDC expects LOB spending to be nearly equal that of the IT organization by the end of the period.

The shift in spending is being driven by "adaptation of 'Innovation Accelerators' such as internet of things, cognitive/artificial intelligence systems and 3D printing," along with the ongoing adoption of more mature consumer-focused technologies for both new product and service developments and day-to-day business operations, according to Naoko Iwamoto, senior market analyst with the IDC Japan IT Spending Group.

"The Innovation Accelerators have put the line of business units in the frontline of the digital transformation and have forced them to work either alone … outside of the IT organization as 'shadow IT' or in closer collaboration with the IT department than ever before," Iwamoto said.

IDC's taxonomy identifies two major types of technology spending: purchases funded by the IT organization and those funded through buyers outside of IT. Joint purchases can be funded either by IT or the functional business unit, while "shadow IT" projects are funded by the functional area without the knowledge, involvement, or support of the IT department.

Although some technology categories are dominated by IT spending, most involve outlays from both IT and the business units, IDC finds. For example, 2017 worldwide spending on servers, storage, and network equipment is forecast to total $114.1 billion through IT departments and $52.9 billion via LOB.

On the flipside, business unit spending on PCs, monitors, mobile phones, printers, and tablets will total $83.8 billion, compared with $76.2 billion spent by the IT department. And line of business buyers will spend more on software applications in 2017 ($150.7 billion) than IT buyers ($64.7 billion).

The technology categories that will see the most spending from LoB buyers in 2017 will be applications ($150.7 billion), project-oriented services ($120.3 billion) and outsourcing ($70.3 billion). Categories earning the most spending from IT buyers will be outsourcing ($149.2 billion), project-oriented services ($82.2 billion), and training/support ($79.8 billion).

Combined IT-LOB purchases of outsourcing and project-oriented services ($422 billion) will represent nearly one-third of all technology spending during the year. The technology categories that will see the fastest growth in spending over the full forecast period are tablets and midrange enterprise servers (14.7% combined CAGR). LOB buyers will also continue to invest aggressively in applications and application development and deployment (8.5% and 9.3% CAGRs, respectively).

In 2017, IDC expects LOB spending to be larger than central IT spending in five industries: discrete manufacturing, healthcare, media, personal and consumer services, and securities and investment services. By 2020, this number is forecast to grow to nine with insurance, process manufacturing, professional services, and retail industries joining the ranks. LOB spending is forecast to grow faster than the IT organization in all 16 industries covered in the spending guide.

"Explosive cloud and other 'Third Platform' technology adoption is enabling U.S. lines of businesses to rely less on enterprise IT than any other country to fund their technology purchases," said Eileen Smith, program director for Customer Insights and Analysis. "On average, U.S. line of business will fund 62% of their technology purchases in 2017. Looking to increase productivity and reduce organizational costs, IDC expects supply chain, human resources, and sales executives will fund the largest share of their companies' technology purchases over the forecast period."