Created in partnership with analyst firm Tech Research Asia, Datacom’s annual cloud report 2024 highlights some significant shifts in the way Australian companies approach technology investment.
Faced with economic uncertainties and operational pressures, organizations are becoming increasingly conservative in their technology spending – although they are still investing. IDC research projects the ANZ IT market to grow from $75.7 billion in 2023 to $106.4 billion by 2028.
However, spending priorities are increasingly focused on finding the paths of least resistance to fuel growth. Rather than investing in complex innovations or advanced technologies such as artificial intelligence, companies are focusing on achieving growth through more fundamental transformation and areas such as the cloud.
Conservative spending and shifting priorities
Datacom’s research shows Australian businesses are taking a more selective approach to technology spending, reflecting a ‘band-wagon’ mindset. With a focus on risk management and operational resilience, the focus shifts to finding low-cost growth opportunities.
Mike Walls, Datacom’s Cloud Director for ANZ, told TechRepublic that cloud is becoming a key part of that strategy.
“Modernizing technology that uses the cloud is a strategic issue that organizations are using to increase cost efficiency while enabling the growth of new digital experiences,” he said.
Research by Datacom shows that only 33% of Australian organizations have an official hybrid cloud strategy, suggesting that some of the focus on cloud is also related to ‘catching up’ with best practice.
“Cloud environments present complex challenges in terms of systems migration, management, provisioning, compliance and ultimately cost,” said Walls. “That’s why we’re seeing our customers look for a more nuanced approach to managing workloads on cloud platforms; while their organizations become more familiar with how applications and data behave in cloud environments.”
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Cloud spending in, innovation out
While spending and interest in cloud technologies indicate efforts to manage costs, this focus appears to be holding back innovation, with Australian businesses showing particularly discouraging trends. Earlier this year, Australian Bureau of Statistics research found that a third of Australian businesses are not investing in innovation. This was mainly due to a lack of available funds to devote to these expenses, as well as a lack of skills.
These findings were further supported in October when Ed Husic, the Australian Government’s Minister for Science and Industry, said that Australia’s research and development – a key indicator for innovation – was in a “sorry state”. He referred to a report on innovation spending from the Department for Industry, Science and Resources which revealed that “access to finance 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 the Datacom report states, the investments that organizations are making would help companies achieve platforms that can support innovation, which could open the door to investment in AI.
“Our data points to investments in modernizing IT platforms to enable better growth, experience and security,” said Walls. “In this environment, the door is wide open for innovation and new ways of generating efficiencies that are best ensured by well-informed technology investments.”
Cyber security is also top of mind and companies are investing heavily in managed security services. However, the report suggests that while security is recognized as a priority, budgets and strategies are still lagging when it comes to cybersecurity innovation – particularly in areas such as AI security and cloud security frameworks. This gap highlights potential vulnerabilities that could be exploited if not addressed through comprehensive planning.
Overall, the big problem is that while Australian organizations are investing in innovation or have the potential to adopt it, the reluctance or lack of resources to do so is leaving companies, especially smaller ones, behind.
Cisco’s AI Readiness Index, published in early 2024, found that only 5% of Australian businesses were fully prepared and equipped to use AI, compared to a regional average of 17%. Datacom’s data suggests that the reputation many Australian organizations share of being innovation “laggards” will not improve with the current set of priorities.
Some improvements to the skill challenge
On the plus side, less concern about skills shortages among Australian organizations is encouraging, as these gaps have long been a barrier to innovation.
As Walls pointed out, the latest figures from Jobs and Skills Australia show that 33% of all occupations had a skills shortage in 2024, down from 2023 (36%). These findings help explain why Datacom’s data shows an easing of recruitment and skills concerns among organisations.
But that doesn’t mean the challenge has eased, Walls added.
“The data marks a more precise departure from the operational impacts of the COVID years, where internalized focus was critical to navigating such a challenging operational environment,” he said. “The fact that Australian organizations identified recruiting and retaining skilled staff as their top five challenges in this year’s report suggests that skills shortages in key areas persist, even if the overall trend is easing.”
How to achieve growth without neglecting innovation
For long-term success, Australian businesses should not neglect innovation, although there are opportunities to achieve growth with relatively conservative investment. This can be achieved in several ways:
1. Use data-driven decision making
One of the benefits of moving to the cloud is a better ability to use data for analysis. This capability should be used to determine which areas of the business would 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 to small, experimental innovation projects. And when some of them start to prove themselves, shove in kind
3. Participate in government and industry initiatives
The Australian government strongly supports innovation, so take the opportunity to participate in government-wide R&D grant programs or industry partnerships to offset the costs of innovation.
4. Focus on upskilling the innovation workforce
While “personnel” may be a less critical priority, still make sure you develop innovation teams to lead efforts to explore and integrate new technologies.
By following these strategies, businesses can build resilience while maintaining a position for future innovation.