Australian companies are focusing on increasing spending on technology

The Datacom Cloud Annual Report 2024produced in collaboration with analyst firm Tech Research Asia, highlights some significant changes in how Australian companies approach technology investment.

Faced with economic uncertainty and operational pressures, organizations are becoming increasingly conservative in their technology spending, although they are still investing. IDC research forecasts the ANZ IT market to grow from $75.7 billion in 2023 to $106.4 billion by 2028.

However, spending priorities are becoming more focused on finding ways of least resistance to fuel growth. Rather than investing in complex innovations or cutting-edge technologies such as artificial intelligence, companies are looking to achieve growth through more fundamental transformation and areas such as the cloud.

Conservative spending and changing priorities

Datacom’s research indicates that Australian businesses are taking a more selective approach to technology spending, reflecting a ‘loop around the wagons’ mentality. With a focus on risk management and operational sustainability, the emphasis is shifting towards finding low-cost growth opportunities.

Mike Walls, director of Datacom Cloud for ANZ, told TechRepublic that cloud is becoming a key part of that strategy.

“Technology modernization that leverages the cloud is a strategy that organizations are using to improve cost-effectiveness while enabling the growth of new digital technologies,” he said.

Datacom’s research shows that only 33% of Australian organizations have a formal hybrid cloud strategy, indicating that some of the focus on cloud is also about ‘catching up’ with best practices.

“Cloud environments present complex challenges in terms of systems migration, management, provisioning, compliance and ultimately cost,” Walsh said. “That’s why we see our customers looking for a more nuanced approach to managing workloads on cloud platforms; while their organizations become more familiar with the behavior of applications and data in cloud environments.”

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Cloud spending is in, innovation is out

While spending and interest in cloud technologies suggest efforts to manage costs, this focus appears to be stifling innovation, with Australian businesses showing particularly disappointing trends. Earlier this year, Australian Bureau of Statistics research found this a third of Australian companies are not investing in innovation. This was mainly due to a lack of available funds to cover these costs, as well as a lack of skills.

These findings were further confirmed in October when Ed Husick, Australia’s government minister for science and industry, said that Australian research and development — a key indicator for innovation — was at “sorry state.” He cited a report on innovation spending from Department of Industry, Science and Resources showing that “access to funds has overtaken cost and lack of access to skills as the main barrier to business investment”.

The danger of being left behind

The looming risk to these shifting priorities is that Australian organizations will be left behind at a time when much of the rest of the world is focused on innovation.

As noted in Datacom’s report, the investments organizations are making will help companies build platforms that can support innovation, which could open the door to AI investment.

“Our data points to investments in modernizing IT platforms to deliver better growth, experience and security,” Walls said. “In this environment, the door is wide open for innovation and new ways to improve efficiency, best enabled by well-informed investments in technology.”

Cybersecurity is also high on the agenda as companies invest heavily in managed security services. However, the report says that while security is recognized as a priority, budgets and strategies still lag when it comes to cyber security innovation, particularly in areas such as AI security and cloud security frameworks. This gap highlights potential vulnerabilities that can be exploited if not addressed through comprehensive planning.

Overall, a major concern is that while Australian organizations are investing in innovation or have the capacity to innovate, the unwillingness or lack of resources to do so is leaving companies, particularly smaller ones, behind.

Cisco AI Readiness Indexpublished in early 2024, found that only 5% of Australian businesses were fully ready and equipped to use artificial intelligence, compared to a regional average of 17%. Datacom’s evidence suggests that the reputation of many Australian organizations as ‘laggards’ in innovation will not correct course with the current set of priorities.

Some skill challenge improvements

On a positive note, the easing of concerns about skills shortages among Australian organizations is encouraging, as these gaps have long been a barrier to innovation.

As Walls noted, the latest data from Jobs and Skills in Australia shows that 33% of all occupations had skills shortages in 2024, down from 36% in 2023. These findings help explain why Datacom’s data shows a decrease in hiring and skills concerns among organizations.

However, that doesn’t mean the challenge has diminished, Walls added.

“These data mark a sharper departure from the operational impact of the COVID years, where an internal focus was vital to navigating such a complex operating environment,” he said. “The fact that Australian organizations identified recruiting and retaining skilled staff as one of the top five challenges in this year’s report shows that skills shortages in key areas remain, even if the overall trend is easing.”

How to achieve growth without neglecting innovation

For long-term success, Australian business must not neglect innovation, even if there are opportunities to achieve growth through relatively conservative investment. This can be achieved in several ways:

1. Use a data-driven decision-making process
One of the benefits of moving to the cloud is the improved ability to use data for analytics. This ability should be used to identify which areas of the business will benefit most from greater investment in innovation.

2. Adopt a hybrid innovation model
Investing in innovation doesn’t have to be all or nothing. Allocate a percentage of the budget for small experimental innovation projects. And when some of them begin to manifest themselves, the scale is in nature

3. Participate in governmental and industry initiatives
The Australian government actively encourages innovation, so take advantage of the opportunity to participate in the government’s extensive R&D grant programs or industry partnerships to offset the costs of innovation.

4. Focus on upskilling the innovation workforce
While “staff” may be a less critical priority, make sure you’re building innovation teams to lead efforts to explore and integrate new technologies.

By following these strategies, businesses can build resilience while remaining ready for future innovation.