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Governments set to spend big on IT in 2023
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Government IT spending is forecast to total $589.8 billion globally in 2023, an increase of 7.6% from 2022, with inflation and skills shortages among the top considerations for CIOs.

That’s according to research from Gartner, which says that this year they will also ensure their digital projects endure mission impact. An increasing number of government institutions are already putting in place at least one digital metric linked directly to outcomes associated with their organization’s public purpose or mission.

By 2026, Gartner foresees over 75% of governments will gauge digital transformation success by measuring the enduring mission impact.

“Global challenges like inflation and workforce scarcity and their local repercussions are testing the abilities of government CIOs to respond with appropriate service delivery mechanisms and organizational accountability,” said Apeksha Kaushik, Principal Analyst at Gartner. “In addition, the “great resignation” and the competing demand from the commercial sector have forced governments to re-examine their approaches to counterbalance internal talent scarcity.

“Governments are increasingly spending their IT budgets to replace legacy applications. Gartner’s 2023 CIO and Technology Executive Survey showed that 57% of government CIOs plan to increase funding for application modernisation in 2023, up from 42% in 2022,”

Software to Remain Highest Spending Segment in 2023

In 2023, software will continue to be the highest growing segment in 2023 (see Table 1). Application modernization investments will increase supported by more software-as-a service-based solution offerings. The use of low-code application platforms (LCAPs) is also on the rise and will further accelerate legacy modernization efforts.

Table 1. Worldwide Government IT Spending Forecast (Millions of U.S. Dollars)

Segment 2022 Spending 2022 Growth (%) 2023 Spending 2023 Growth (%)
Data Center Systems 25,760 11.1 26,623 3.3
Devices 34,224 -8.7 32,643 -4.6
Internal Services 66,940 -2.3 69,178 3.3
IT Services 191,958 3.4 209,103 8.9
Software 161,894 10.0 183,733 13.5
Telecom Services 67,583 -4.9 68,514 1.4
Total 548,359 2.9 589,794 7.6

Source: Gartner (May 2023)

Government spending on IT services will continue unabatedly in 2023. “Compensation constraints and limited resources to attract and retain IT talent is becoming an even bigger challenge today as many governments are facing IT talent shortage,” said Kaushik.

To continue modernizing and innovating critical IT infrastructure and applications, some government organizations will embrace a multisourced workforce strategy by optimizing the use of internal IT talent and investing in employee experience tools to empower and spark innovation, as well as partnering with external IT service providers to speed time to value.

Throughout 2023, government organizations will continue to invest in initiatives that improve access to digital services as constituents increasingly demand experiences that are equivalent to online customers.

While digital transformation remains a top priority for governments, some government CIOs have indicated they are falling short in realizing maximum benefits from their digital investments. “Government CIOs who are moving beyond scaling digital solutions across their critical services are ensuring that further investment in digital solutions can directly impact how they achieve the mission or public purpose of their organization,” said Kaushik.

87% of business leaders expect to increase sustainability investment in short-term
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87% of business leaders expect to increase their organization’s investment in sustainability over the next two years. Customers are the primary stakeholder group creating pressure for organizations to invest or act on sustainability issues, selected by 80% of executives, followed by investors (60%) and regulators (55%).

“Sustainability enables businesses to cope with disruption,” said Kristin Moyer, Distinguished VP Analyst, Gartner, which carried out the research. “Economic uncertainty, geopolitical conflict and escalating materials and energy costs are forcing businesses to reexamine all forms of expenditure. This focus on essentialism, in combination with increasing stakeholder desire to see progress on environmental, social and governance (ESG) goals, creates new opportunities for enterprises to grow while mitigating cost and risk.”

The survey was conducted in June and July 2022 among 221 respondents in North America, Europe and Asia/Pacific. Respondents were executives in director roles or above within organizations with enterprise-wide annual revenue of at least $250 million for fiscal year 2021, which are currently engaged in sustainability-related activities.

Sustainability Protects Organizations from Disruption

The survey found that 86% of business leaders see sustainability as an investment which protects their organization from disruption. Additionally, 83% said sustainability program activities directly created both short- and long-term value for their organization, and 80% indicated that sustainability helped their organization optimize and reduce costs.

Specifically, the top areas where survey respondents said sustainability programs are mitigating cost increases are energy consumption, business travel and customer transactions (see Figure 1).

Fig. 1. Top Operations-Related Costs Being Mitigated Through Sustainability Programs

Source: Gartner (November 2022)

“Executive leaders are achieving both operational and supply chain savings through their sustainability programs,” said Moyer. “This kind of ‘two for one,’ where sustainability investment supports a business goal like cost optimization, significantly enhances the program’s impact by creating a virtuous cycle.”

Sustainability Drives Growth and Innovation

Sustainability can also enable new value creation and business growth opportunities. Fifty-seven percent of business leaders said the enterprise sustainability program has a strong connection to the results on the income statement, and 42% of respondents are leveraging their sustainability activities to drive innovation, differentiation and enterprise growth through sustainable products.

“Investing in sustainability can support product differentiation but be wary of greenwashing risks – there are no shortcuts to sustainable growth,” said Moyer. “Focus on product attributes that are important to customers and how these priorities shape buying decisions. When viewed through a strategic lens, sustainability can provide a ray of sunshine for businesses during difficult market conditions.”