With modest GDP growth and stagnant budgets, organizations around the world are finding it necessary to reallocate funds from mature areas to support IT investments. While cloud and security continue to be key priorities, generative AI (GenAI) is increasingly taking the spotlight as companies strive for significant productivity improvements. GenAI investment is expected to grow 30%, with leaders from companies with high GenAI maturity anticipating their return on investment will be three-times higher over the next three years than that of companies with little or no adoption of the technology, according to a new report by Boston Consulting Group (BCG) released today.
The report, titled IT Spending Pulse: As GenAI Investment Grows, Other IT Projects Get Squeezed, is based on a joint survey with GLG, conducted in Q1 2024. It captures insights from 330 IT buyers at the director level or higher, across various industries. Of the respondents, 66% are from North America and 34% from Europe. The focus is on large and midsize companies, with 60% of respondents from large enterprises and 40% from midsize firms.
“The emergence of GenAI has made it imperative for many companies to adapt,” Clark O’Niell, a managing director and partner at BCG and a coauthor of the report. “Successful companies will be those that manage a difficult balancing act: allocating IT budgets to keep pace with GenAI while maintaining adequate funding for essential day-to-day operations.”
IT budgets are experiencing steady, modest growth, increasing by 3.2% in 2023 from the previous year and further rising to 3.3% in 2024. Survey respondents gave equal importance to cost control and enabling growth, with 54% indicating that each is a top-three priority. Since the previous IT Spending Pulse survey in the third quarter of 2023, growth increased in importance by 5% while cost as a priority decreased 2%. Also top of mind for leaders was security and digital transformation, with 61% and 60% respectively rating these as top-three priorities.
Leaders are intent on directing their spending toward growth areas deemed high-impact and high-necessity, including artificial intelligence (AI) and machine learning (ML) (with a 30% net spend increase), security infrastructure (27%), cloud services (30%), and analytics (18%). Respondents expect the largest net spend decreases to occur in server infrastructure (24%) and devices (16%).
GenAI Maturity by Industry and Geography
The report’s authors developed a GenAI maturity index to assess where companies currently land in their development. Based on the level of implementation across ten business functions, companies were grouped into four categories: little to no adoption, low maturity, mid maturity, and high maturity. Only about 20% of companies have little or no GenAI adoption, down from about 24% in Q3 2023. Although the percentage of companies with high maturity adoption has stayed constant (~12%), the percentage of mid maturity companies jumped from ~18% to ~27%.
Tech companies are at the forefront, with 62% qualifying as mid or high maturity, followed by the banking, retail, industrial goods, and health care industries, where 32% to 39% of companies have reached similar levels of maturity. Among the industries lagging are energy, travel and tourism, and insurance, each with at least 40% of companies showing little to no adoption of GenAI.
Geographic location plays a lesser role in GenAI adoption. Adoption rates are consistent in North America and Europe, with around 40% of companies achieving mid to high maturity levels. In Asia, adoption is slightly higher, with 45% of companies reaching these maturity stages. Additionally, the percentage of companies with minimal or no GenAI adoption is lower in Asia at 16%, compared with 18% in North America and 23% in Europe, despite recent regulatory developments around GenAI in Europe.
Although this was BCG’s seventh IT Spending Pulse Survey, it was the first to include findings from the Asia-Pacific (APAC) region. The APAC findings were highlighted separately since there was no 2023 data available for comparison. IT buyers in APAC project a 6% to 7% increase in IT spending for 2024, compared with 3.3% in North America and Europe, focusing on digital transformation. APAC companies also see significant value in GenAI, with 25% qualifying as high maturity and only 16% with little to no adoption, compared with 13% and 11%, and 18% and 23% in North America and Europe, respectively.
Companies with Higher GenAI Maturity Poised for Future Returns
According to the data, companies with high GenAI maturity estimate ROI three times higher over the next three years, compared with companies with little to no GenAI adoption. Thirty-eight percent of high maturity companies expect an ROI of 20% to 30%, and 3% expect more than that. By comparison, only about one-third as many companies with low to mid-level GenAI maturity anticipate returns of 20% to 30%, yet twice as many expect more than 30% returns.
Another indication that GenAI investments are yielding positive outcomes is the willingness of companies to spend beyond their allocated budgets. In 2023, companies initially projected that approximately 4% of their IT budgets would be allocated to GenAI, but actual spending reached about 4.5%. Looking ahead to 2024, the average allocation for GenAI is set to increase to 4.7%, with forecasts predicting a substantial 60% growth in the next three years, raising the share to 7.6% by 2027. Growth-focused companies say they will increase their budgets 15% more than cost-focused companies (7.9% versus 7.1% of overall IT budgets).
Friction Points Inhibiting IT Investment and Implementation
Among survey respondents, the leading barrier to GenAI adoption is the immaturity of GenAI technology, which was cited as a challenge by 43% of high maturity, 36% of mid maturity, 38% of low maturity, and 50% of companies with little or no maturity. Furthermore, about 30% of this last group have no plans to implement GenAI technology over the next three years.
Among high maturity companies, other areas causing implementation challenges include data risks, legal risks, and inadequate training, which have increased 8%, 10%, and 21%, respectively, since the Q3 2023 survey.
“Despite the justifiable excitement surrounding GenAI, IT leaders must articulate a clear, strategic plan to garner CIO support, as mere hype won’t suffice in today’s tough budgetary environment,” said Federico Fabbri, a managing director and partner at BCG and a coauthor of the report. “CIOs should adopt a systemic approach to IT investment request, including planning adequate resources for success, asking for a clear business case and how leaders plan to measure outcomes, and ensuring vendor support.”
