Worldwide IT spending is expected to increase by 7.5% this year, reaching an eye-watering $5.26 trillion. As companies strive to modernise, improve their agility, and race ahead of the competition, the overheads of this investment into tech can become a sizeable burden.
And, if that same technology fails to have an ROI, risk begins to loom on the horizon.
In this article we take a look at the rising cost of IT, and address the strategies companies are using to mitigate costs. We'll also look at the cost benefits of keeping operations in-house, versus hiring a helping hand.
We'll touch on:
-
Tech budgets today: The scale of the problem
-
Beyond budget: engineer fatigue and morale
-
Best practices for managing a tech budget
-
How can businesses ensure an ROI on tech investments?
-
When is it beneficial to outsource IT services?
-
How to evaluate the cost-effectiveness of managed IT services
-
How can companies reduce technology costs in 2025?
Let's get into it.
Tech budgets today: The scale of the problem
Tech spending is on the rise, influenced by innovations in data analysis, GenAI, and smart automation. These outgoings are largely spread across:
-
IT (growth of 7.5% in 2024)
-
IT services (7.1% growth)
-
Communications services (3% growth)
-
Software (12.6% growth)
-
Devices (5.4% growth)
-
And data centre systems (24.1% growth)
Digital transformation has become a necessity, rather than a luxury, with businesses today investing in solutions that will evolve their operations, improve their offerings, and prepare them to weather a rapidly changing future.
While the majority of IT leaders expect their tech budgets to increase in the next fiscal year, many are still facing a host of issues.
-
63% of companies are struggling to secure IT talent.
-
Every year, employers lose just over $4K per employee due to tech issues.
-
57% of employees feel restrained by legacy technologies.
The writing is on the wall: while tech, and its importance, is on the rise - its use remains riddled with costly issues.
And, dwindling funds aren't the only issue...
Beyond budget: engineer fatigue and moral
It's not just about the money. When IT teams are burdened with an overflow of tools, technologies, and IT issues, it can lead to burnout, day-to-day fatigue, and a drain on team resources. Costly, poorly performing tech ecosystems don't just exhaust your budget; they sap your engineers' morale and productivity too.
Picture this: You're constantly bombarded with notifications, updates, and maintenance requirements from a myriad of systems, none of which seamlessly integrate with each other. It can quickly become overwhelming. Engineers, frustrated with the lack of cohesive solutions, naturally become less engaged and more prone to burnout. Their creativity is stifled, and they might even become more prone to errors, all of which can spell disaster for your projects.
Worse yet, your engineers are pulled away from truly valuable work that could advance your business - bogged down with fixes just to keep systems running.
Morale is often overlooked in budget discussions, and yet, it's a critical component. So much so, that employee turnover has its own eye-watering costs, with it taking anywhere between six and nine months' salary to hire a replacement, and train them up within the job.
Beyond operational efficiency, scale, and reliability, getting your tech ecosystem right can have hidden savings you'd be wise to capitalise on. By ensuring the tools, integrations, and tech ecosystems of your business work beyond an ROI, you'll create a better overall work environment - for your budget, and your people.
Best practices for managing a tech budget
Managing a technology budget effectively demands a blend of foresight, strategic planning, and tactical execution. You'll need to pay careful attention to things like ROI, ongoing expenses, scalability, integrations, and the cost factor of keeping things in-house, versus outsourcing. You'll also need to weigh up short-term costs, with long-term gains - with a focus on "the bigger picture" to ensure your budget stretches for the long haul.
Let's get into a little bit more detail.
Get clear on your need
While it's important to innovate and experiment with technology, it's also crucial that your experimentation aligns closely with your company's strategy and direction. Not least because it will increase the likelihood of an ROI, but also because it will directly benefit the business, earn stakeholder buy-in, and increase the amount of budget afforded to your department.
You'll want to do an up-close analysis of the business need, the current pains, the potential rewards of an investment, and the risks of the avenues available to you.
It also helps to document the cost of your current system, spanning software, hardware, team resources, and more. Map this against the potential cost savings of new technology, in addition to the longer term savings that could come with a more efficient solution.
Prioritise integration
Few things are a greater drain on resources than disparate toolsets that fail to integrate. Often, businesses will unknowingly hold a surplus of tools that achieve the same end - leading to unnecessary outgoings and an inconsistent approach to tool use and documentation. Worse yet, with technologies kept in silos, the exchange and analysis of data becomes a long and exhaustive task.
Intelligent use of your technology budget involves an assessment of your existing systems, silos, and opportunities for integration. It also involves paying close attention to investments that can easily squeeze more value from your existing ecosystem.
Check for company overlaps
As companies scale, they can naturally evolve into silos, where differing teams use an array of toolsets. This breakdown in communication can lead to costly investments across multiple tools. Focus on a top-down analysis that probes into every corner of the business, and demonstrates the unique need for every tool. You'll find many overlaps in terms of functionality - allowing you to consolidate technology and open up finances for other investments.
Assess in-house resources
Not all technologies are made equal. Take AI for example; while it promises a host of opportunities, it can be a resource intensive technology, demanding expensive hardware and software investments, in addition to in-house AI expertise. Before investing into technology, look beyond the initial fee into things like maintenance, skills required, and hardware requirements. You may find unexpected hidden costs.
Think about stakeholder buy-in
While performant technology will open the door to opportunity, poor investments will tighten the purse strings. Focus on earning stakeholder trust early on in the management of your tech budget, considering things like "low-hanging fruit" investments with immediate impact. Similarly, you'd be surprised at the savings that can come from taking a hard look at your existing ecosystems, and pivoting to something new.
Consider off-loading: MSPs
Finally, consider when it might be advantageous to outsource to a managed IT services provider. The demand for MSPs has been steadily increasing over the years, amounting to a 12% annual growth rate in the last five years.
MSPs can offer a host of benefits when it comes to being optimal with tech budgets, from outsourcing IT staff, to streamlining the build of tech systems, their upkeep, and their evolution.
External experts can provide specialised skills, reduce workloads for your IT team, and often achieve better economies of scale - without the same overhead costs of hiring in-house.
Before investing however, make sure your MSP is on the same page when it comes to cost-effectiveness, scalability of systems, and the long-term strategy of your business.
How can businesses ensure an ROI on tech investments?
Stating "make sure you get an ROI on your investments" is easy to do. Actually making it happen, is another thing. Let's dive into best practice methods for making a positive ROI a reality.
-
Decide what an "ROI" actually is: Depending on the purpose of your investment, your ROI may not directly be financial. Perhaps, you want to remove legacy systems to accelerate the pace of your team, while boosting morale. Perhaps, you want a more secure cloud infrastructure that improves your data compliance and earns the trust of more clients. Have a laser focus on your need, and what it will take to get it delivered. Only then can you truly assess the ROI of your project.
-
Conduct a cost-benefit analysis: Let's crunch the numbers. Estimate any potential revenue generation or cost savings this investment can deliver. Weigh these against costs like purchasing, implementation, staff training, and ongoing maintenance. Don't forget to consider long-term subscription costs, hiring needs and more.
-
Look beyond the funds: Beyond finance, you'll want to measure the "softer" ROI of your investments. Think about things like, the shortening of your sales pipelines, acceleration of valuable work, automation of repetitive tasks, or increased worker morale.
-
Train your staff: It's all fine and well to invest in modern technology, but unless your team is truly equipped to use and understand these tools, it's a sunk cost. One of the biggest issues facing businesses today is the under-utilisation of existing tools within the company. Investments fall by the wayside, and the route to "modernisation" remains unrealised. Try to promote an "adopt-first" culture within your business, that encourages the embrace of new technology, the standardisation of uses, and the ongoing development of what best practice looks like.
-
Focus on impact: As we've already addressed - you want your investment to make a tangible impact, particularly if it's one of your earlier investments. According to research from Deloitte, teams saw the biggest impact when their investment related to cybersecurity and risk mitigation (54%), core modernization and legacy application renewal (52%), shift to the cloud (49%), and analytics and data science (45%).
-
Consider a pilot: A project "pilot" can be a useful way of demonstrating the benefit of your investment, earning stakeholder approval, training staff, and securing wider business buy-in. It also allows you to "test" the technology, without disrupting too much of the business. This can allow you to define best practice uses of the tool, spot problems on a smaller scale, and roll out the technology with a clear idea of what "good" looks like for its use. The result? More optimal use of the tool, better standardisation company-wide, and easier implementation.
-
Focus on scalability, flexibility, and agility: We don't need to tell you, the tech world moves fast. The last thing you want is for your investment to become obsolete in 5 to 10 years' time. Carefully probe the long-term plans of your tech or service provider, and ensure that innovation is at the heart of their operations.
How can companies reduce technology costs in 2025?
We've touched on getting a return on your new investments - but how can you encourage company-wide cost reductions?
For companies who want to reduce tech costs in 2025, we have a few recommendations.
-
Embrace the cloud: Cloud computing opens businesses up to more predictable expenses while reducing the hardware costs of more traditional businesses. Similarly, with the right setup, your cloud infrastructure can streamline integrations, improve cost efficiency, and improve team productivity.
-
Consider automation: With the rise of AI and machine learning, companies are increasingly looking to automate repetitive tasks, workflows, or processing tasks. From the automated scan of receipts to the translation of unstructured data into insights, the opportunities for automation are seemingly endless. Dive into the areas of the business where worker time or morale could be freed for more valuable work, and explore the cost-benefit of getting it into place.
-
Investigate tech "bloat": As we've touched on, a surplus of tools can be a common issue in companies, often driven by a lack of transparency between departments. Conduct a complete analysis of your existing tech stack, speak to its most frequent users about its users, speak to managers regards its impact, and consolidate the results. You'll quickly find overlaps and cost-saving opportunities - without undercutting the effectiveness of the business.
When is it beneficial to outsource IT services?
Managed Service Providers (or MSPs) can be an interesting option in the battle to reduce technology costs. Particularly in the last five years, we've seen a rise in demand for MSPs, thanks to the expertise they can provide for a fraction of the cost of an in-house team.
But how do you know whether an MSP is the right thing for your business? And how can you ensure its an optimal use of your tech budget?
Expertise
Perhaps your in-house team lacks the skills required for new tech deployments or implementations - rather than wasting time and resources trying to upskill in-house, it may be worth exploring an MSP. Outsourcing can keep your engineers focused on valuable work while ensuring new integrations, services, or deployments run smoothly.
Cost management
Ultimately, you want your MSP to deliver more performant tech operations while being more cost-effective than the hire of an in-house team. Consider things like salaries, benefits, and ongoing training - and weigh up whether an MSP could provide more value, both in terms of expertise and budget. Many MSPs also offer predictable and transparent rates, so you can manage your outsourcing costs month-to-month.
Delegation
You'll want to keep in-house resources focused on the most valuable work, both to them and to the company. This is where automation, MSPs, and AI can be useful. Used correctly, MSPs can ensure time is only spent on valuable work - but you'll need to make sure they're truly an "add" to the business. Focus on MSPs that are highly experienced, possess expertise beyond what you have in-house, and prioritise efficiency above all.
Innovation-focused
Finally, you'll want to ensure your MSP has its eye on the horizon, with a focus on keeping your operations agile. A good MSP will build scalability into its service, allowing you to quickly adjust your requirements, without the hassle of hiring or letting go of team members.
Manage your budget effectively with Lyon Tech, the London MSP of choice
Considering a managed service provider? Lyon Tech is the chosen MSP for some of the biggest companies in London, a 2024 finalist for "Supply Chain Partner of the Year", and the go-to for businesses looking to get smart with their tech ecosystems.
