Business are funding investments in innovative technologies by cutting costs where they can rather than growing budgets, according to a new report from Gartner.

They're turning to cost optimization efforts — for example Software-as-a-Service (SaaS) instead of software licenses, voice over LTE (VoLTE) instead of cellular and digital personal assistants instead of people — to save money, simplify operations and speed time to value. 

As a result, worldwide IT spending is forecast to be flat in 2016 despite investments in new digital business technologies, the Internet of Things and even proprietary algorithms. And even that prediction may be overly optimistic: It was predicated on an assumption that the U.K. would not exit the European Union, said John-David Lovelock, research vice president at Gartner.

"With the U.K.'s exit, there will likely be an erosion in business confidence and price increases which will impact U.K., Western Europe and worldwide IT spending," Lovelock said. In a June 23 vote, UK residents voted to leave the European Union (EU), 51.89 percent to 48.11 percent. 

'Lackluster' Spending

Worldwide IT spending is forecast to total $3.41 trillion this year. This is up negligibly from last quarter's forecast of negative 0.5 percent growth, mainly due to currency fluctuations. 

Gartner describes its Worldwide IT Spending Forecast as a leading indicator of major technology trends across the hardware, software, IT services and telecom markets. Its spending forecast methodology relies on analysis of sales by thousands of vendors across the range of IT products and services, the company said.

IT spending Source: Gartner

More Enterprise Software

Enterprise software spending is expected to total $332 billion this year, a 5.8 percent increase from 2015. Last year at this time, Gartner said enterprise software vendors would try to hold the line on prices because they're more interested in market share than profitability.  

North America is driving the growth: it is responsible for $11.6 billion of the $24 billion dollar increase in 2016. Globally, enterprises are putting most of their cash in customer relationship management software, the fastest-growing market, according to Gartner.

Other findings from the Gartner research include:

  • Data center systems' spending is projected to reach $174 billion in 2016, a 2 percent increase from 2015
  • Devices spending is projected to total $627 billion by the end of 2016
  • Spending in the IT services market is expected to increase 3.7 percent, totaling $898 billion
  • Communications services spending is projected to total $1.38 trillion in 2016, down 1.4 percent from 2015