In order to decide whether to suggest an aggressive or cautious plan, CIOs and IT leaders should look for signs in their organizations and worldwide economic conditions as they create their budgets for digital transformation.
CIOs should hedge their bets in their 2025 strategy, according to early evidence.
Analysts predict that the Fed will soon lower interest rates after August inflation fell to 2.5%, the lowest level since February 2021. However, a number of threats to the world economy include isolationist trade policies, political upheavals in the United States, and sticky inflation in Europe.
In terms of IT and security, the Wall Street Journal reported 6% IT unemployment despite overall job growth in the United States, indicating that many companies aren’t rehiring or freezing their hiring. In addition to laying off 1,800 employees, PWC is reorganizing its technology division to concentrate on client services and generative AI. In August, 27,000 tech workers were laid off by Intel, IBM, Apple, and Cisco; in 2024, 136,000 tech positions vanished from over 420 organizations. On the plus side, Gartner predicts that global spending on information security would increase by 15% by 2025.
AI’s impact in 2024
In 2024, AI was a top IT priority that affected operations, talent, and IT priorities.
1. According to an EY study, 50% of tech company executives expect a mix of hiring and layoffs as a result of AI adoption, while 82% of them intend to boost their AI investment.
- According to an Augury and IndustryWeek poll, 83% of manufacturers stated that their company was investing more in AI in 2024 than in 2023, and 90% of manufacturers have between 11% and 50% of AI pilot projects achieving scale at their sites.
- According to a Rafay survey on the pulse of corporate platform teams, 83% of respondents think pre-configured AI workspaces with integrated MLOps and LLMOps tooling may save teams more than 10% of time each month, and 96% emphasize the significance of offering effective techniques for creating and implementing AI applications.
Mixed economic signals heading into the 2025 budget season
“In planning and presenting their budgets, CIOs must overcome a range of uncertainties, including election years, the state of the economy, AI impacts, hybrid working, and other factors,” says Massimo Peselli, CRO of global enterprise and public sector at Verizon Business.
In the late 1990s, when I was the CTO of a startup and unsure of how much money we could raise, I recall budgeting as a CIO during the 2008–09 financial crisis. Depending on the financial situation, I created multiple budgets and modifications in both cases.
CIOs now need to consider a variety of eventualities in addition to timing, since some companies may put off finalizing their budgets and spending until 2025. CIOs may hedge their disruptive investment plans in these five clever ways.
Develop transformation leaders.
In the event of a downturn, services, consultants, and leadership and development initiatives are frequently the first to be reduced. However, leadership and development programs are frequently the last budget items to be planned and funded when there is a budget rise and increased business need for technology, AI, and transformation.
Regretfully, the emphasis is typically on skill development, which is crucial but frequently not the reason behind the CIO’s efforts to innovate and adapt. To enhance planning, implementation, and leading change management efforts on digital transformation projects, CIOs should allocate funds to build their extended leadership team.
The following is how CIOs can hedge: When it comes to creating their digital Trailblazers, top CIOs never cut corners, but when budgets are limited, they can be more innovative about what and how they invest. Some low-cost strategies to encourage lifelong learning without requiring significant financial outlays include starting a book club, holding seminars, and highlighting the best qualities of digital transformation leadership.
Leverage relationships to gain commitment.
Peselli of Verizon Business suggests, “CIOs can tie technology investment to business transformation that can help make an organization agile, efficient, and ready to adjust to political, social, and economic environments.”
Peselli suggests two actions for CIOs:
Obtain internal support from the CFO, CHRO, and CPOs in addition to business and operational leaders.
Choose a small group of reliable partners who can brainstorm, plan, and carry out the CIO’s objectives—the North Star, whose limits bring the partners together to work towards a single goal.
Investments in organizational agility, such as bettering network performance and expanding hybrid working capabilities, can pay off in the short term (increased productivity) and in the long run (lower costs and fewer risks).
The following is how CIOs can hedge: Agile planning, DevOps techniques, and change management are examples of digital transformation core competence practices that may be continuously improved to increase business agility. Aligning these investments in process improvement with the most strategic initiatives is a best practice.
Plan multiple scenarios, then communicate the strategy.
Creating several budget scenarios is another suggestion made by other leaders.
“In uncertain times, scenario planning is crucial for ensuring technology investments yield maximum ROI,” says Mike Lee, President and GM at AND Digital. “CIOs can stay agile in the face of uncertainty by preparing plans A, B, and C, such as determining where to allocate capital in a market upturn or downturn. Often, companies that invest strategically during these periods can potentially gain a 1-2 year head start on bringing new technological capabilities to market, securing a significant competitive advantage while others pull back.”
Prioritizing force multiplier investments that serve several company priorities is one suggestion. Investing in developing AI capabilities for marketing and sales, for instance, has the potential to boost productivity and revenue. As “an efficient means, where cross-functional teams can solve pressing issues and rapidly prototype solutions that position them ahead of competitors,” Lee of AND Digital suggests hackathons.
“With our current market volatility and uncertainty, things can change on a dime,” says Michael Werblun, CEO of Consulting Solutions. “CIOs must adopt a more flexible, scenario-based approach to budgeting, with contingency plans in place for economic and market shifts and the ability to quickly make modifications accordingly. It’s also increasingly important to align IT initiatives and spending to business priorities, focusing on projects that drive efficiency and innovation and enhance customer acquisition and retention.”
The following is how CIOs can hedge: Prioritize creating the business case for the most promising projects. After executives have decided on the company’s strategic objectives, choose the right projects and include an updated digital transformation plan.
Hedge AI investments with non-negotiable risk reductions.
Although many businesses are making significant investments in AI, CIOs should be aware that there may be a downturn soon. Some organizations have found that AI is elusive, and there are eight reasons why we might already be in an AI bubble: overinvestment, hype, and skill gaps.
Every company should, in my opinion, invest wisely in AI. Businesses in many industries will probably be disrupted if they fall too far behind in productivity gains, underinvest in data intelligence skills, and lose out to competitors creating AI-enabled goods and services.
Budget fluctuations are anticipated, particularly if the encouraging AI news of this year turns out to be unfavourable in 2025. Not only should CIOs think about which AI domains and how much to invest in, but they also need to think about how to combine their AI investments and plans to lower business risks.
Here’s one example when using copilots for code generation. “Looking toward 2025, CIOs must recognize that AI code assistants are accelerating the pace of coding, resulting in an exponential increase in material changes that can impact software quality, compliance, and security while creating new vulnerabilities for attackers to exploit,” says Idan Plotnik, co-founder & CEO of Apiiro. In this rapidly evolving development landscape, manual processes for security reviews, prioritization, remediation, and prevention are no longer sustainable.”
Examining the dangers and opportunities associated with third-party service providers is necessary for a second scenario.
“With the global cost of cyber events rising annually coupled with a prevailing reliance on a select few third-party service providers, any one of whom could trigger a catastrophic market incident upon an operational disruption, CIOs must transition from a cybersecurity mindset to one of proactive cyber risk management,” advises Yakir Golan, CEO of Kovrr. “By leveraging Cyber Risk Quantification (see CRQ) models to gain an objective understanding of their organization’s financial exposure to various loss scenarios, CIOs can optimize their undoubtedly limited budgets, prioritizing initiatives according to those that will result in not only the greatest reductions in overall exposure levels but also a positive ROI, bolstering resiliency amid an increasingly foreboding cyber risk landscape.”
The following is how CIOs can hedge: One strategy is comparable to the way I advise combining data governance with citizen data science projects. Many companies are reluctant to invest in and devote resources to proactive data governance, despite wanting the advantages of being a data-driven organization. CIOs stand a better chance of meeting both business goals if they combine these investments and establish agile data teams. I advise approaching AI and associated security initiatives in a similar manner.
Seek force multipliers in app modernizations
The last difficult topic is how CIOs allocate funds for app updates. Delaying investments to fix systems with technical debt that affect business operations or to modernize aging systems is difficult. CIOs are also being pressured to integrate AI into their main workflow systems, which frequently necessitates spending money on SaaS features, enhancing data quality for LLMs, and educating the company on utilizing Gen AI capabilities.
A CIO who has the resources, leadership, expertise, and business backing to invest in all of their top business priorities is unheard of. Every budget season, determining focal areas, communicating a strategy, and maintaining discipline in resource allocation can be difficult prioritization exercises.
“CIOs should start planning their budgets by examining their current application stack and areas for cost improvements while ensuring they leverage new technologies that provide their organizations a competitive advantage,” says Jason Forget, president and CRO of Cockroach Labs. “Systems that need updating should be handled incrementally, prioritized based on business impact. This will allow leaders to make consistent, attainable progress without disrupting existing processes or breaking the bank.”
The following is how CIOs can hedge: By creating a flexible prioritization process and utilizing an agile PMO that describes and measures the advantages of activities along several strategic axes, CIOs hedge. Because the CIO must provide a “why now” explanation for each priority, this discipline is especially crucial when assessing which apps, infrastructure, and IT operational areas to invest in. CIOs can establish their strategy, priorities, investment areas, and roadmap when executives decide on strategic goals. They can then make adjustments throughout the year as goals change.
