What are Estonia’s IT managers focusing on when preparing the 2024 budget?
Worldwide IT spending is projected to total 4.7 trillion dollars this year, according to the latest forecast by Gartner, Inc. This would mean a 4.3 per cent increase compared to 2022. The research shows that in the face of a shortage of IT talent, more and more IT managers are shifting to technologies that enable automation to drive growth at scale with fewer employees. But what are the trends in Estonia and what are IT managers focusing on when preparing the budgets for the coming year? We asked large companies operating in Estonia to comment.
Will next year’s IT budget decrease or increase compared to 2023? Which areas of IT will receive the most resources?
The budget process is ongoing at Tallink and the exact direction will be clear in the coming months. ‘Given the overall economic environment, it is likely that the IT budget will increase slightly in the coming year. Preliminary estimates suggest an increase of around 10%,’ says Martin Mürk, Chief Information Officer at Tallink.
According to Mürk, the resources of the shipping company are divided between several areas and no major growth is planned in any of them. ‘We will certainly continue to invest in cyber security, as the importance of this area and the number of cyber threats are constantly growing. The connectivity is also important area, as customers expect to have access to similar connectivity services on land and at sea. Creating the connections that meet expectations at sea is challenging and on ships, it requires a lot of attention and numerous investments. We have to take into account that today’s customers have more than one device that is connected to the Internet, and while ships can accommodate up to 2,500 passengers, the number of active devices on board can reach over 3,000,’ says the CIO of Tallink.
At the same time, work is underway to upgrade the environments for customers and staff to meet today’s standards in terms of both ease of use and technical requirements.
Kaspar Hioväin, Chief Information Officer at Coop Estonia, says that their company’s IT budget is also likely to increase in 2024. ‘In particular, the cyber security budget is growing. This is due to the constant increase in cyber risks,’ he says, echoing Tallink’s IT manager. He adds that there is also strong wage pressure from the staff.
The latter statement is confirmed by Andres Peiker, Head of IT at G4S. ‘Connectivity and human resources will benefit the most. This is mainly due to business growth and inflation,’ he says. Nevertheless, the IT budget of the security company will decrease next year. Peiker explains why: ‘With the closure of some of the old systems, the associated costs will disappear. In addition, the amortisation of some old investments is coming to an end.’
Swedbank said that as the priorities for the new year are still being set, the bank cannot disclose its IT budget. ‘In the coming year, our focus will be to use IT developments to contribute to improving customer sustainability and accessibility. We are constantly investing in improving the continuity of our systems as well as further developing our services and cyber security,’ said Evelin Kivilo-Paas, Media Manager of Swedbank.
Which investments will increase the continuity of IT systems?
According to Peiker, G4S Estonia plans to invest primarily in software and cloud services. Hioväin mentions that Coop is considering setting up a backup data center.
‘Given that many of Tallink’s business areas, such as shipping, hotels, and e-commerce, operate around the clock, 24/7 reliability has become the norm,’ says Martin Mürk, CIO at the shipping company. Due to the limited communications at sea, Tallink mostly uses its own servers. ‘However, connectivity is improving and we are therefore considering the possibility of using partly cloud-based solutions to improve service continuity,’ he adds.
Are expectations on IT growing in proportion to the resources provided?
Nowadays, most new ideas require the involvement of the IT sector, and therefore, expectations on IT are high. ‘As there are often more ideas and projects than available resources, we need to be strategic and prioritise those activities that offer the greatest value to our business,’ says the CIO of Tallink.
Mürk mentions that although the labour market situation in the IT sector has improved slightly, finding and retaining good specialists remains the biggest challenge. ‘So I think the bigger challenge in the coming year will be staffing, although financial resources will also be important to ensure high-quality services and innovation,’ he says.
Peiker and Hioväin agree with him. ‘The biggest shortage, in my opinion, is staff, and we are planning to recruit more developers,’ notes the CIO of Coop Estonia. The IT department at G4S is also missing some employees. At the same time, Peiker points out that expectations on IT are growing more or less in proportion to the resources provided.
How much does the green transition play a role in the IT budget?
According to the CIO of Tallink, the budget for 2024 takes into account the green transition and the stricter climate requirements. ‘Environmental friendliness and sustainability are an important part of our company’s strategy, and are therefore central to our projects,’ says Mürk.
According to the CIO of Coop, there will be no extra focus on the green transition and stricter climate requirements.
G4S takes meeting climate targets very seriously. ‘Last year, taking this into consideration, the position of ESG Area Manager (ESG stands for environmental, social, and corporate governance – ed.) was created,’ Peiker notes. He estimates that around 5–10% of the IT budget is related to meeting climate targets.
What measures have been implemented to reduce the ecological footprint of IT?
‘Economical workplace equipment; power saving when devices are not in use for a while; using the cloud instead of our own hardware and data center,’ Peiker lists measures used at G4S.
‘When purchasing hardware, we use GreenIT as our partner, which organises the reuse of all equipment used by Coop Estonia,’ Hioväin gives an example.
At Tallink, one of the focus areas for reducing the ecological footprint of IT is monitoring the number of devices and their energy consumption. The IT solutions in place help to reduce and optimise energy use on ships. ‘As one example, we are working on reducing the number of printers on board ships and in offices, which will support both energy savings and the promotion of a paper-free environment. We are also using server virtualisation and consolidation to reduce hardware consumption. In addition, we stay up to date with technological innovations that allow us to choose more environmentally friendly solutions both on land and at sea,’ says Mürk.
In addition, Tallink has been actively organising digital waste clean-up days in recent years and worked on the digitisation of document management. ‘As an example, one of the latest projects we launched is digital logbooks for ships, which is another step in reducing paper documents and promoting a more digital environment,’ notes Mürk.
What does the Gartner forecast show?
According to John-David Lovelock, Principal Analyst at Gartner, digital business is changing. ‘IT projects are shifting from a focus on external facing deliverables, such as revenue and customer experience, to more inward-facing efforts focused on optimisation,’ he said.
In the software segment, growth is set to reach double digits this year as companies reallocate spending to core applications and platforms that support efficiency gains, such as applications for enterprise resource planning (ERP) and customer relationship management (CRM). In the light of rising prices, software costs will continue to rise.
While the overall outlook for business IT spending is positive, inflation will continue to affect consumer purchasing power to the extent that spending on equipment will decline by 8.6% in 2023.
‘The devices segment is experiencing one of its worst growth years on record,’ Lovelock said. ‘Even as inflation eases slightly in some regions, macroeconomic factors are still negatively impacting discretionary spending and lengthening device refresh cycles. Device spending is not expected to recover to 2021 levels until at least 2026.’
What are the observations of the head of the largest data center in the Baltics for the coming year?
According to Tõnu Grünberg, CEO of Greenergy Data Centers, their team is in daily contact with Estonian IT managers, based on which, he is able to make three observations. ‘First, inflation will undoubtedly have an impact on IT budgets. More resources will be needed in the new year than this year to carry out the same tasks. This will lead to an increase in budgets or the need to find areas to optimise,’ Grünberg begins. He says that sometimes, it can appear to the casual observer that there is unlimited money in IT, but in reality, people are looking carefully at where it is being spent and, in the current economic climate, they are doing so increasingly carefully.
‘Second, we are seeing more plans than before to consolidate the IT footprint. This is done both in the cloud and in data centers. From our own data center, we can see that thanks to technological advancements, customers can do significantly more with the same amount of IT equipment, meaning that you can successfully grow your business without significantly increasing your footprint.’ continues the CEO.
‘Third, there is also a clear drive in IT for environmentally friendly solutions and greater energy efficiency. This is also why there is a move towards cloud solutions or larger data centers that can anticipate tightening EU requirements and reporting needs. It is also possible to keep up with technological developments more rapidly. Environmentally conscious companies require environmentally conscious IT managers, who already introduce green thinking at the planning level,’ he adds. In terms of IT infrastructure, he says that both money and attention will continue to be invested in the new year to ensure high levels of reliability, as more and more organisations are serving their customers around the clock. However, reliability and security have already become a hygiene issue, without which successful operations are hard to imagine.