Enterprise spending on software will not slow anytime soon, but without proper governance, wasted budgets will plague businesses.
Software spending is expected to snowball through 2027, growing to 42% of total tech spend, up from 34% last year, according to Forrester data published in January.
What started as adding a few collaboration tools and software licenses to support remote employees during the pandemic quickly became unmanageable for most enterprises.
Businesses understand the value that software can bring, but economic uncertainty and record-high inflation have pressured many enterprise leaders to rethink budgets, priorities and governance models.
To make sure software spending is bringing the highest value to the business, CIOs need to prioritize visibility and governance models, according to experts. Only 35% of companies have complete visibility into IT assets and their impact on business, according to a Flexera survey of 500 IT executives.
Understanding how vendors update their products can help CIOs keep track of capabilities, according to Greg Leiter, senior director analyst at Gartner.
Many enterprises are accessing software solutions via the cloud. Cloud-based models enable businesses to have less downtime for updates and upgrades, but those incremental changes could impact the current needs of the enterprise, according to Leiter.
“Vendors can continually innovate the product, so you’re getting access to that innovation much faster than you could in the old world,” Leiter said.
A capability gap filled by one SaaS subscription could be duplicated in a new update from another vendor.
This requires businesses to not only have a catalog of current capabilities at the time of subscription renewal but also throughout the process as updates are released to avoid repetitive applications, according to Liz Herbert, VP principal analyst at Forrester.
“If your business needs are changing, if just the product mix is changing or if the quantity is changing, then those are all opportunities for you as a business to ensure your standards continue to be aligned with what your business really needs,” Herbert said.
This applies to the recent enterprise interest in generative AI technology, as well.
AI software spending is set to nearly double by 2025, reaching $64 billion, according to Forrester data in October. AI-enhanced tools have become more popular as the technology evolves, and viral tools like ChatGPT spur incumbents.
Generative AI technology has already begun to trickle down to enterprises through vendors and major cloud providers, including Microsoft Azure, Google Cloud and AWS.
Companies with a more mature tech stack will be looking to invest in the latest and greatest AI-enhanced software, while companies with more rudimentary tech capabilities will be searching to add automation where they can, according to Herbert.
“In general, as companies want to achieve better outcomes for their business, software tends to play an important role no matter what their starting point is,” Herbert said.