The Datacom Annual Cloud Report 2024, produced in collaboration with analyst firm Tech Research Asia, highlights some significant changes in the way Australian businesses approach technology investments.
In the face of economic uncertainties and operational pressures, organizations are becoming increasingly conservative with their technology spending, although they are still investing. IDC research projects the ANZ IT market will grow from $75.7 billion in 2023 to $106.4 billion in 2028.
However, spending priorities are increasingly focused on finding the paths of least resistance to boost growth. Instead of investing in complex innovation or advanced technologies like AI, companies are aiming to achieve growth through more fundamental transformation and areas like the cloud.
Conservative spending and changing priorities
Datacom research indicates Australian businesses are taking a more selective approach to technology spending, reflecting a “going around in circles” mentality. Focusing on risk management and operational resilience, the emphasis is shifting toward pursuing low-cost growth opportunities.
Mike Walls, Datacom Cloud Director for ANZ, said in an interview with TechRepublic that cloud is becoming a key part of this strategy.
“Technology modernization that leverages the cloud is a strategy organizations are using to drive cost efficiencies while enabling the growth of new digital experiences,” he said.
Datacom research shows that only 33% of Australian organizations have an official hybrid cloud strategy, indicating that part of the focus on the cloud is also about “catching up” to best practice.
“Cloud environments pose complex challenges in terms of systems migration, governance, provisioning, compliance and, ultimately, costs,” Walls said. “That's why we see our customers looking for a more nuanced approach to managing workloads on cloud platforms; as their organizations become more familiar with the behavior of applications and data in cloud environments.”
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Cloud spending in, innovation out
While spending and interest in cloud technologies suggests efforts towards cost management, this focus appears to be stifling innovation, with Australian businesses showing particularly discouraging trends. Earlier this year, research from the Australian Bureau of Statistics found that a third of Australian businesses do not invest in innovation. This was mainly attributed to a lack of available funds to dedicate to that expense, as well as a lack of skills.
These findings were further supported in October, when Ed Husic, the Australian government's science and industry minister, said Australian R&D – a key indicator for innovation – is in a “parlous state”. He referred to a report on innovation spending from the Department of Industry, Science and Resources which reveals 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 shifts in 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 indicates, the investments organizations are making would help companies achieve the platforms that could support innovation, which could open the door to investing in AI.
“Our data points to investment in modernizing IT platforms to enable better growth, experiences and security,” Walls said. “In this environment, the door is open to innovation and new ways to generate efficiencies that are best achieved through informed technology investment.”
Cybersecurity is also high on the agenda, with companies investing heavily in managed security services. However, the report suggests that while security is recognized as a priority, budgets and strategies are still lagging behind when it comes to innovating in cybersecurity, particularly in areas such as artificial intelligence security and security frameworks. the cloud This gap highlights potential vulnerabilities that could be exploited if not addressed through comprehensive planning.
Overall, the big concern is that while Australian organizations are investing in or have the potential to embrace innovation, a lack of will or resources to take that step is leaving businesses, especially smaller ones, behind.
Cisco's AI Readiness Index, released in early 2024, found that only 5% of Australian businesses were fully prepared and equipped to take advantage of AI, compared to the regional average of 17%. Datacom data suggests that the reputation many Australian organizations share for being “laggards” in innovation is not going to course correct with the current set of priorities.
Some improvements to the skill challenge.
On the positive side, reduced concern about skills shortages among Australian organizations is encouraging, as these gaps have long been an impediment to innovation.
As Walls noted, the latest data from Jobs and Skills Australia shows that 33% of all occupations had skills shortages in 2024, a drop from 2023 (36%). These findings help explain why Datacom data shows a decline in concern around recruitment and skills among organisations.
However, that doesn't mean the challenge has diminished either, Walls added.
“The data marks a sharper move away from the operational impacts of the COVID years, where an internalized approach was vital to navigating such a challenging 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 would suggest skills shortages persist in key areas, even if the overall trend is declining.”
How to achieve growth without neglecting innovation
To be successful in the long term, Australian businesses should not neglect innovation, even if there are opportunities to achieve growth with relatively conservative investment. This can be achieved in several ways:
1. Leverage data-driven decision making
One of the benefits of migrating to the cloud is an improved ability to leverage data for analytics. This capability should be used to identify which areas of the business would benefit most from a more substantial investment in innovation.
2. Adopt a hybrid innovation model
Investment in innovation does not 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, escalate in kind
3. Participate in government and industry initiatives.
The Australian government is strongly incentivizing innovation, so take 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 workforce for innovation
While “staff” may be a less critical priority, be sure to develop innovation teams to lead efforts to explore and integrate new technologies.
By following these strategies, companies can build resilience while remaining positioned for future innovation.
