By Blake Wetzel Posted on September 17, 2024
Generative AI exploded onto the scene in 2023, electrifying executive boardrooms with visions of increased productivity and business transformation. But its abrupt arrival has taken many IT professionals by surprise, smashing long-range IT investment plans like a bowling ball. While there is tremendous urgency to adopt AI, paying for that investment is a challenge that many CIOs are struggling with.
IT budget growth is meager
In a recent Lenovo survey, 96 percent of CIOs anticipate increasing their investment in AI. However, only 20 percent expect their IT budgets will grow by more than 10 percent[1]. According to the Forrester 2025 Budget Planning Guide for Technology Executives, more than nine in ten IT decision-makers expect to see their budgets increase in 2025, but just 40 percent envision anything more than a five percent jump[2]. These small increases are nearly wiped out by inflation, which the World Economic Outlook projects to stay above 3 percent through 2025[3].
AI solutions are costly
Boardroom expectations and meager budget growth are out of touch with the reality of the high cost of evaluating and implementing AI. Some of this technology is currently free and open source, but this may not be the case for very long. Furthermore, the intensive computing requirements of AI often require upgrades and augmentation of a company’s technology infrastructure. Upgrading CPUs to GPUs and FPGAs and investing in ASICs chips is expensive.
Labor expenses to support AI are also on the rise. According to the Lenovo survey, IT leaders identified slow adoption speed as a major challenge to AI, reporting that large portions of their organizations are not prepared to integrate AI swiftly, and only 49 percent rated their own IT departments as having AI-ready technical skills. Even a small AI development team—comprised minimally of a data scientist, machine learning engineer, and software developer—can cost a company half a million dollars in salary alone. For AI to succeed, IT must make the financial commitment to bring on and retain skilled talent, and to upskill existing staff.
CIOs are faced with difficult decisions
Amid the pressure to add AI as a top priority, the laundry list of the CIO’s other priorities has not gone away. Fundamentals like data management, reducing container and cloud sprawl, security, and identity management are still essential on their own, but they also, in fact, are important to ensuring that AI applications run optimally. CIOs cannot organically fund AI by shifting budget from these core technology initiatives.
How can IT leaders fund their AI investments while budgets are flat and when cutting other essential projects is a non-starter?
Optimizing the IT spend can yield hidden funding for AI
The reality is that CIOs must redouble their efforts at efficiency and right-sizing their technology infrastructure. Research reveals that American enterprises are paying technology prices that are 79 percent higher than what market conditions warrant across dozens of technology categories that include cloud and data services, SaaS, network storage, business process outsourcing, and telecommunications.
Jon Arnold, founder and principal analyst of technology consultancy J Arnold & Associates, agrees with those findings. “For the past several years, I’ve spoken with many enterprises that have heavily invested in new innovations like cloud services, customer engagement platforms, business processing capabilities, and other solutions at peak market prices. As capital becomes more expensive, many of these organizations find themselves financially handcuffed to their tech stack, limiting their ability to invest in emerging solutions that may offer even greater value to their business.”
By aggressively inspecting and rebidding their technology expenses and vendor agreements, IT can claw back tens of millions or hundreds of millions of dollars—enough operating capital to make a significant dent in a company’s AI budget needs.
Conclusion
Generative AI offers great promise and is destined to be a transformative technology for many businesses. However, IT leaders are struggling to determine how to fund these implementations without cancelling other foundational initiatives. Savvy CIOs should explore alternative methods, such as renegotiating and optimizing current technology costs and vendor contracts, as a vehicle to harvest capital for funding their AI projects.
About Blake Wetzel
Blake Wetzel is the CEO of AIQ, a recognized leader in procurement consulting and e-auctions. AIQ provides an end-to-end service, from performing the spend analysis, to sourcing and qualifying vendors, to road mapping the overall renegotiation strategy, to running auctions, to delivering renegotiated contracts to the client. For the past 20 years, AIQ has delivered, on average, 44 percent savings on technology costs, helping their clients organically increase operating capital, improve EBITDA and enterprise value, invest in growth projects, and fend off cuts to budgets and headcount. Learn more at www.aiq.co.