August 27, 2019 Financial Services
It’s no secret that corporations globally plan to spend a significant amount on digital transformations and other endeavors in the next few years. But how much? And exactly what are they spending money on?
Market intelligence firm International Data Corp. estimated at the end of 2018 that digital transformation spending worldwide will grow at a five-year compound annual rate of 16.7%, reaching $1.97 trillion in 2022.
In the United States, discrete manufacturing is expected to spend $63 billion in 2019, the most of any industry. (Discrete manufacturing is the manufacturing process where identical products are assembled on an assembly line.) Transportation and professional services also top the list. The biggest areas of cost will be in IT services, applications and connectivity. The Internet of Things (IoT) is a particularly popular area right now, especially in manufacturing.
“The introduction of IoT sensors and communications capabilities is rapidly transforming manufacturing processes as well as asset and inventory management across a wide range of industries,” said Eileen Smith, program director with IDC’s customer insights and analysis group, in a press release. “Similarly, artificial intelligence and machine learning are dramatically changing the way businesses interact with data and enabling fundamental changes in business processes.”
The spending is massive. The group expects that 30% of companies will allocate at least 10% of revenue on digital strategies by 2020.
Technology can increase efficiencies and save companies money. But corporate executives are using cost reductions as a way to fund technological transformation, according to consulting firm Deloitte in a 2019 survey. More businesses recognize the need to transform their operations and capabilities with investments in digital innovations, the firm said.
Research firm Forrester had a slightly different take on this. They predicted that IT spending in the U.S. for goods, services and staff will grow by 6.1% in 2019, slightly lower than 2018. The firm said flat spending on manufacturing plants and equipment, declining housing investment and declining exports are weaknesses, although U.S. consumer spending is a strength.
The firm hopes U.S. consumers will continue to open their wallets this year. Retail and services should accelerate tech spending. Media, high tech and financial services will have the highest ratio of tech spending to revenue, spending 8% to 9% of revenue on technology in 2019, Forrester said. Most firms will spend 3% to 6% of revenue on technology in 2019.
The July 2019 report from the U.S. Department of Commerce confirms Forrester’s predictions so far. Consumer spending on retail climbed a healthy 0.7% in July of 2019 year-over-year, even as business investment weakened.