Dive Brief:
- Even a well-managed AI strategy will increase enterprise IT budgets as the technology seeps into operations, according to a Bain & Co. report published Thursday.
- Based on its projected spending trends analysis, the management consulting firm determined a typical $10 billion consumer packaged goods company will see its annual IT costs rise 75% by 2035. Without cost controls, spending might grow even faster, the firm found.
- To help rein in costs, Bain & Co. recommended that executives weigh each project as an investment decision, adding rigor to the process. Providing more visibility into tech spending plans and reinvesting AI-fueled efficiencies can also help businesses become more disciplined.
Dive Insight:
Spending is top of mind for enterprise leaders, with new costs line items hitting the IT budget as businesses meld AI into existing operations.
Gartner expects spending on AI models and platforms alone to jump more than 63% from last year to $64 billion. AI use among enterprises, and the resulting spike in compute demand, is also contributing to 14.2% year-over-year increase in global IT spend, the analyst firm said.
Greater architectural complexity, higher cybersecurity costs and growing data governance requirements will contribute to the spike in spending, alongside talent investments and the rapid obsolescence of AI platforms, according to Bain & Co.
Although Bain & Co.’s analysis focused on the consumer packaged goods sector, the firm expects similar growth patterns to reach other industries, according to Danielle Burgs Escobar, head of Bain & Co.’s U.K. enterprise technology practice.
“Probably more or less extreme, and also on different timescales … but I think that the trend is going to be pretty universal,” Burgs Escobar told CIO Dive.
As costs rise, leaders are taking a more cautious approach to AI deployment, analysts and executives previously told CIO Dive. Most businesses are struggling to measure the ROI on previous AI spending, and one report suggested one-quarter of AI spending goes to waste as pilots are powered down.
Amid rising concern, there’s real peril in taking an overly cautious approach, Burgs Escobar said.
“If you underinvest, you get left behind,” said Burgs Escobar. “Your competitive advantage erodes, you do things the old way and you’re not taking advantage of technology.”
But overspending too, comes at a price.
“When you overspend, you lose credibility with your organization and become just a cost center, rather than driving the return on investment that the overall organization really needs,” Burgs Escobar said.
