After the initial shock of the pandemic, most companies put IT projects on hold, halting CapEx spending wherever they could to buffer losses.
But, quickly, they also learned certain areas of tech required more investment, not less, to operate.
Overall, even with the increased spending in some areas of IT, the shift over the past two years for much of IT's budget has been away from CapEx in favor of OpEx spending, said Christopher Gilchrist, a principal research analyst at Forrester. The pandemic simply accelerated a decades-long trend.
"The composition of IT budgets had to change during the pandemic," he said. "Upwards of 60% of organizations began accelerating the shift in IT spend from CapEx to OpEx in order to generate greater capacity to scale capabilities."
The question is whether or not pandemic-driven shifts will last. As the pandemic situation evolves, companies must adapt their spending and risk tolerance to respond to external pressures, including rapid changes in their need to operate remotely or on-site.
One of the weaknesses exposed by the pandemic is that business continuity plans, which often focus on localized, cataclysmic events such as a tornado or a flood, did not account for the need to send all of an organization's employees home at the same time.
Cloud services cannot be consumed if employees do not have at least a high-speed internet connection and laptop or tablet with a browser to access them, said Andrew Hewitt, a senior infrastructure and operations analyst at Forrester.
"A lot of organizations have seen the value … from a business continuity perspective of physical hardware whether that's provided as personally owned or [purchased] through Best Buy through HP, or Dell, or Lenovo or someone like that," he said.
Only 10% of organizations surveyed recently said they planned to decrease hardware spending this year, while 25% said they expected to spend the same as last year. The remainder of organizations surveyed plan to increase hardware purchasing this year, Hewitt said.
The Spiceworks Ziff Davis report, Hardware Trends in 2022 and Beyond, found that between 2020 and 2022, budgets for hardware spending decreased just 3% and that 94% of organizations still buy, provision, and run on-premises servers.
The survey also found that, compared to 2018, when 68% of respondents said PCs were the primary office computing device, this year only 40% reported this to be the case. Laptops now rival PCs as employees' main computing device.
"All this to say … on-premises and cloud infrastructure will co-exist and grow increasingly interoperable, allowing for greater portability and flexibility that will benefit organizations in a hybrid world," the study said.
A new as-a-service world for hardware
A hybrid approach to hardware is something Jeff Shumway, CIO at IT consulting firm Insight, is seeing first hand with his customers. While OpEx is "still growing profoundly" his clients are opting to rent hardware-as-a-service instead of owning it outright as in days past.
"We had a client recently looking to modernize their storage infrastructure that began with a distinct preference for CapEx," he said. "But they’ve ultimately opted for a storage-as-a-service strategy because they see the advantages of greater financial and operational flexibility. This is a very typical experience for us with clients these days."
Since 2020, 63% of companies responding to a Lenovo survey of 525 global CIOs said they are using more device-as-a-service (DaaS) in their tech stack, which differs from traditional leasing because DaaS often comes with software, services, and support where leasing may not, according to a Lenovo white paper.
The pandemic accelerated existing trends
The ways organizations operated have been and continue to be upended by the pandemic and work-from-home workforces, said Gilchrist. How work gets done today is very different from just two years ago.
Gilchrist sees three potential operating models starting to emerge as the pandemic loosens its hold on the global economy.
- The traditional, cost-conscious organization will mostly go back to pre-pandemic IT budget behavior by slightly favoring CapEx over OpEx.
- Productivity optimizing organizations will continue their pandemic behavior and technology buying patterns but at a slower pace. "These organizations will embrace new operating arrangements coming out of the pandemic as the new normal," he said.
- Outcomes-based organizations will "continue the momentum of pandemic IT budget behavior with little slowdown. These are the organizations that will use the new normal out of the pandemic as a point of significant lift," he said.
"Post-pandemic, the question now should be how elastic the current shift from CapEx to OpEx is," said Gilchrist. "The financial reality of how organizations re-evaluated their costs during the pandemic is one thing, but the operating reality coming out of the pandemic is another."
