Some companies slow spend on digital transformation but larger trend is still clear

Summary

Citing a recent report by market research firm Canalys, the WSJ depicts a mixed picture on market-wide digital transformation prospects. Though Microsoft’s year-on-year enterprise cloud growth grabbed headlines, also included in results was the company’s admission that multi-year licensing deals were slow to complete in the final weeks of the quarter —just as the COVID‑19-induced slowdown was taking hold. Some analysts see a positive long-term trend towards digital being brought forward by the pandemic. Others see a slowdown in IT spend and longer-term licensing commitments and investment in cloud initiatives like further AI adoption in the short term as companies scramble to cut costs.

Report

Analysis

While COVID‑19 has brought the future forward by two years by rapidly accelerating remote working for companies and their employees, and digital product usage by consumers, early indications are that this will likely not mean an acceleration of long-term IT spend towards things like cloud in the short term. Companies recognize that future growth is increasingly dependent upon the successful execution on digital in both internal operations and external customer-facing revenue generating initiatives. But the short term need for cost savings necessary to weather the crisis means that things like multi-year cloud licensing deals will be put on hold-for now by some companies. The recent Microsoft results are an indication of this as the slowdown in multi-year license deals at the tail end of March may be a sign of things to come over the balance of 2020.

The trend towards digital transformation is accelerating, and though companies need to cut costs where prudent in the short-term, one aspect of a technology program that companies would be wise to preserve is security. Cyberhedge data demonstrates that a persistent underinvestment in security results in a cyber posture not proportionate to the growing risks rapidly digitizing firms face. This contributes to poor cyber governance that has been proven to negatively impact market performance and company financials.

The result of this is that the dual tension between: 1. the increased need to accelerate digital transformation and cut costs in the short term, and 2. the need to cut costs while also maintaining strong cybersecurity amid increased digital risks, will characterize the next phase of corporate digitization.

In addition to stronger financials, companies that place an emphasis on secure networks and a resilient technology posture will be rewarded by the market.

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Denis Bolshakov

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