A survey of 375 IT decision-makers within small-to-medium businesses in the U.S. suggests that planned investments in IT in 2023 are contracting slightly because of continuing economic headwinds.
Conducted by Analysys Mason, a management consulting firm, the survey finds that nearly two-thirds of respondents (64 percent) will increase IT expenditures 4.4 percent on average in 2023. That’s down from 5.2 percent when this survey was conducted six months ago.
Well over two-thirds of respondents (69 percent), however, still anticipate a year-on-year increase in revenue, down slightly from 73 percent six months ago.
As a result, Analysys Mason observes SMBs have slipped into a period of “strategic realignment” meaning they will reevaluate IT spending priorities, which will likely lead to longer sales cycles.
Future economic predictions fluctuate
Given the general uncertainty about the overall economy, managed service providers (MSPs) could be heartened by the simple fact that the IT spending outlook for SMBs isn’t any worse. Economic forecasts, as usual, vary widely. The Conference Board, for example, is forecasting the Gross Domestic Product (GDP) for the U.S. will slow to 0.7 percent in 2023, and then fall to 0.4 percent in 2024.
Other economists suggest that there will be a much softer landing following a rise in interest rates to rein inflation in. Historically, the period following a rapid rise in inflation, known as disinflation, has involved large numbers of layoffs that eventually lead to slower economic growth if not an outright recession. However, the past has seldom been a reliable indicator of future economic performance. Some economists argue inflation won’t decline rapidly as much as it will be reined in as part of a soft landing that will result in fewer layoffs. Those fewer layoffs should make the overall economic downturn less tumultuous.
The economic outlook is never the same from one geography to another. Nor are all vertical industry segments equally affected. Anyone, of course, who assures an MSP they know how the economy is going to precisely perform from one quarter to the next, probably has a loose appreciation for facts and figures.
SMBs are depending on IT support now more than ever
In general, MSPs would prefer to see strong economic growth that expands the overall size of the market for their services. However, many MSPs have historically experienced counter-cyclical benefits from a downturn simply because organizations become less inclined to hire full-time IT personnel. That may prove to be even more likely given how dependent most SMBs are today on IT to drive business operations compared to where they were during the last major economic downturn prior to the COVID-19 pandemic that from an economic perspective was a unique “Black Swan” event.
The one thing that many MSPs don’t like to see is an economic outlook that sits somewhere in the middle of those two extremes simply because it becomes that much more challenging to know for sure which way the proverbial economic wind is really blowing. The only thing more challenging than downsizing a business is trying to scale it back up in time to take advantage of the eventual upturn.
MSPs know all too well from painful experience know just how hard it is to find and retain the right IT talent regardless of hot or cold the economy may be at any given moment. Of course, the rise of artificial intelligence (AI) may change the IT labor equation but one way or another each MSP is going to need to place a bet on how long and deep any downturn may be assuming that economic forecasts are more credible in the months ahead than they have been in the recent past.
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