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AI and machine learning will be the sixth biggest area of IT spending growth in Australia and New Zealand in 2024, though CIOs are working with flat budgets overall in making spending decisions.

Cybersecurity and Cloud concept image.
Image: Adobe/chaylek

Australia and New Zealand’s IT leaders will be forced to work with flat budgets in real terms into 2024 when inflation and labour costs are taken into account, though Gartner data indicates CIOs will still double down on cyber security spending and commit more funds to the cloud.

Gartner distinguished VP analyst Andy Rowsell-Jones said cyber security is now like a “tax” organisations must pay to play in a digital economy. Other key spending decisions follow the region’s shift to cloud, including reductions in legacy infrastructure and data centres.

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Spending increase for cyber security, cloud and data

87% of local CIOs and executives surveyed by Gartner said cyber security will receive the largest increase in investment in 2024, up from 62% in 2023. This was higher than around the world, where 80% of CIOs reported cyber security spending increases.

Gartner’s Andy Rowsell-Jones said recent large-scale cyber security breaches in the local market meant every organisation’s risk and audit committee was “worrying about a potential cyber security fallout,” while “most industry regulators are actively pushing for improved competence.”

SEE: The ASEAN region confronts rising cyber risks.

“Cyber security is still obviously a big issue, and I think that is not going to go away,” Roswell-Jones said. “I have likened it to a tax in the past, in the sense that it is an inevitable investment. We cannot avoid making that investment, just as you can’t really avoid paying tax. It’s a necessary evil.”

Australasian ‘love affair’ with cloud shows in spending boost

The second-biggest area of spending growth is cloud spending, including public and private cloud. Gartner’s figures show that, behind cyber security, 79% expected to direct the largest amount of additional funding towards cloud platforms, followed closely by data analytics (78%).

“Australia and New Zealand has had a love affair with cloud for a while, and that doesn’t show any signs of abating,” Rowsell-Jones said. “And when you talk to the vendor community, looking at the larger vendors, cloud is definitely a big part of the strategy.

“Obviously there are some applications that you can’t move out of your data centre for whatever reason, but (this predicted spending increase) would certainly appear to me to indicate a continued love affair or continuous migration to the cloud in the market.”

Legacy infrastructure spending to decrease as cloud increases

The biggest planned cuts in IT spending are focused on reductions in on-premises and legacy infrastructure spending. AndyRowsell-Jones said that, as organisations shifted to the cloud and upped their cloud spending, there was a decrease in spending on legacy infrastructure.

Gartner found that 50% of respondents were planning to decrease investments next year in legacy infrastructure and data centre technologies, followed by enterprise resource planning and next-generation compute technology (10%) and application modernisation (9%).

“While it’s surprising to see that investments in application modernisation will decrease next year, it’s unlikely that it has run its course,” Rowsell-Jones said. “More likely, it has just been deprioritised in the face of other more pressing issues for ANZ CIOs.”

SEE: Australian and New Zealand enterprises face pressure to optimise cloud strategies.

AI and machine learning sixth but will rise with deployment

AI and machine learning will receive the sixth biggest increase in spending, having been nominated for an increase by just 62% of CIOs. However, Rowsell-Jones said that this will change as use cases move past the proof-of-concept stage, particularly for generative AI.

“If you talk to the CIO community, it’s hard to say all of them, but certainly the vast majority are experimenting with using AI and generative AI for various purposes,” said Roswell-Jones.

He cites examples like a “super search” for company information and a rising usage for software development.

Gartner predicts between 60% and 70% of organisations will begin deploying use cases by the end of 2024, up from 10% now. Because “deployment is when the real investment starts,” Rowsell-Jones said there would likely be future increases based on use case successes.

Future AI spending direction will depend on proving use cases

Because organisations are still experimenting with use cases for AI and generative AI, Rowsell-Jones said it was still “difficult to predict” exactly what the use cases will look like into the future, including whether they will soon be of the “transformational” variety.

“Most organisations are starting with in-house incremental or everyday AI use cases,” said Roswell-Jones. “Where they go from there will be done on a case-by-case basis; it obviously depends on how successful they’re being. I think that’s not a bad sort of model; you learn what you can.”

IT leaders have no real increase in budget to spend

IT leaders are facing a difficult environment where, when inflation and other factors are taken into account, Andy Rowsell-Jones said IT “budgets are basically flat.” Apptio recently told TechRepublic some IT leaders are needing to find savings of between 10 and 15%.

SEE: IT leaders have more work to do to engage senior executives and boards.

Though Gartner has forecast 4% IT budget growth in the region, if an inflation rate of 3.3% is allowed for, IT leaders would only see 0.7% real growth. Rowsell-Jones said that IT labour costs, which can outstrip inflation in some skill areas, would further impact this outlook.

“It could be on aggregate that Australian and New Zealand businesses are looking at a standstill in terms of their IT budgets in 23-24,” said Rosswell-Jones. “While there is a bigger number in terms of new money, it is going to be eroded due to increased costs.”

IT talent cost a factor in spending as skills crunch bites

Rowsell-Jones said cyber security is one area where there continues to be a “talent crunch” in the market. While many are looking at generative AI skills as the next gold rush for tech teams, he said it is still uncertain how many of those working with AI will need AI skill sets.

“If you’re going to weigh in and design and build your own large language model — yes, you probably need some geniuses,” Roswell-Jones said. “But if you’re going to start feeding your datasets, you probably need good data scientists, but I’m not entirely sure they need to be AI specialists.”

One area where organisations may need capabilities is the ability to validate outputs from AI models. Though feeding data into them might be relatively easy, problems like AI hallucinations mean specific AI and data skills may be needed to ensure confidence in the accuracy of results.


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