Line of Business budgets could make up half of IT spending

Non-IT business units are set to spend almost as much as IT-funded purchases, according to forecasts from IDC.

The analyst firm says the share of worldwide corporate IT spending that is funded by non-IT business units is forecast to reach 47% in 2019, an increase of more than 3% over 2015, according to the new Worldwide Semiannual IT Spending Guide: Line of Business, which quantifies the purchasing power of line of business (LoB) technology buyers.

"3rd Platform technologies such as cloud, mobility, big data, and social business have created the underpinnings for business process transformation and, in some cases, business model transformation," says Eileen Smith, program, director, customer insights and analysis, IDC.

"With such high stakes, the line of business units are increasingly taking a front seat in technology initiatives by flexing their budgetary muscle," she says.

Smith says IDC's Line of Business taxonomy identifies two major types of technology spending – projects funded by IT and projects funded by technology buyers outside of IT.

"Joint IT projects can be funded by either IT or the functional business unit while Shadow IT projects are funded from the functional area budget without the knowledge, involvement or support of the IT department," she explains.

In North America (the United States and Canada), projects funded by line of business units accounted for 58.2% or $324 billion of all corporate IT spending in 2015. In Europe, the Middle East and Africa (EMEA), 38.1% of IT spending came from technology buyers outside of IT while 29.3% of IT spending in the Asia/Pacific region was for LoB-funded projects. In Latin America, the share of IT spending funded by business units was 25.5% in 2015.

The share of LoB funding is forecast to gradually increase in all four regions over the next four years.

From a functional perspective, IDC's technology buyer research focuses on twelve purchasing segments. Industry-Specific Operations, which includes unique industry-specific functions that are required for running day-to-day operations (ie, manufacturing plant floor, claims processing, etc.) is the largest segment of LoB spending ($252.7 billion worldwide in 2015) but the smallest segment in terms of LoB spending share (45.5%). The two segments with the largest LoB share of IT spending – Supply Chain Management (54.4% in 2015) and Customer Service (53.9%) – are also the second and third largest segments in terms of spending size.

Much like the regional trend, IDC expects all twelve functional purchasing segments to increase their share of IT spending over the forecast period, Smith says. The fastest growing functional areas are marketing, with a 6.4% compound annual growth rate (CAGR), followed by security and risk (6.0%), and customer service (4.8%).