The Datacom Cloud Annual Report 2024produced in collaboration with analyst firm Tech Research Asia, highlights some significant changes in the way Australian companies are approaching technology investment.

Faced with economic uncertainties and operational pressures, organizations are becoming increasingly conservative in their technology spending – although they are still investing. IDC research projects that the ANZ IT market will grow from $75.7 billion in 2023 to $106.4 billion by 2028.

However, spending priorities are becoming increasingly focused on finding the paths of least resistance to fuel growth. Instead of investing in complex innovations or advanced technologies such as artificial intelligence, companies aim to achieve growth through core transformations and areas such as the cloud.

Conservative spending and shifting priorities

Datacom’s research indicates that Australian businesses are taking a more selective approach to technology spending, reflecting a ‘circle the wagons’ mentality. With a focus on risk management and operational resilience, the focus is on finding low-cost growth opportunities.

Mike Walls, Datacom’s Cloud Director for ANZ, said in an interview with TechRepublic that the cloud is emerging as a key part of that strategy.

“Modernizing technology that leverages the cloud is a strategy that organizations are using to increase cost efficiency while enabling the growth of new digital experiences,” he said.

Datacom research shows that only 33% of Australian organizations have a formal hybrid cloud strategy, indicating that some of the focus on cloud is also about ‘catch-up’ to best practice.

“Cloud environments pose complex challenges in systems migration, governance, provisioning, compliance and ultimately cost,” Walls said. “That’s why we see our customers looking for a more nuanced approach to managing workloads on cloud platforms; as their organizations become more familiar with the behavior of applications and data in cloud environments.”

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Spend in the cloud, innovate out

While spending and interest in cloud technologies suggests efforts towards cost management, this focus appears to stifle innovation, with Australian businesses showing particularly discouraging trends. Earlier this year, research by the Australian Bureau of Statistics found that a third of Australian businesses are not investing in innovation. This was mainly attributed to the lack of funds available to devote to such expenditure as well as lack of skills.

These findings were further supported in October when Ed Husic, the Australian government’s minister for science and industry, said Australian research and development – ​​a key indicator for innovation – was in a “sorry for the condition.” He referenced a report on innovation spending from Department of Industry, Science and Resources revealing that “access to funds has overtaken cost and lack of access to skills as the main barrier to business investment”.

A danger of being left behind

The looming risk to these shifting priorities is that Australian organizations will be left behind at a time when much of the rest of the world is focused on innovation.

As the Datacom report points out, the investments that organizations are making would help companies realize the platforms that could support innovation, which could open the door to investing in AI.

“Our data points to investments in modernizing IT platforms to enable better growth, experiences and security,” Walls said. “In this environment, the door is wide open for innovation and new ways to drive efficiencies that are best delivered by informed technology investments.”

Cyber ​​security is also high on the agenda, with companies investing heavily in managed security services. However, the report suggests that while security is recognized as a priority, budgets and strategies still lag behind when it comes to cybersecurity innovation, particularly in areas such as AI security and cloud security frameworks. This gap highlights potential vulnerabilities that could be exploited if not addressed through comprehensive planning.

Overall, the big concern is that while Australian organizations are investing in innovation or have the potential to embrace innovation, the unwillingness or lack of resources to do so is leaving companies, especially smaller ones, behind.

Cisco’s AI Readiness Indexpublished in early 2024, found that only 5% of Australian businesses were fully prepared and equipped to use AI, compared to the regional average of 17%. Datacom’s data suggests that the reputation many Australian organizations share of being ‘late’ to innovation will not correct with the current set of priorities.

Some skill challenge improvements

On the positive side, the reduced concern about skills shortages among Australian organizations is encouraging, as these gaps have long been an impediment to innovation.

As Walls pointed out, the latest data from Jobs and Skills Australia shows that 33% of all occupations had a skills shortage in 2024, down from 2023 (36%). These findings help explain why Datacom’s data shows a decline in recruitment and skills concerns among organizations.

However, that doesn’t mean the challenge has diminished either, Walls added.

“The data marks a more definite shift away from the operational impact of the COVID years, where an internalized focus was vital to navigating such a challenging operational environment,” he said. “The fact that Australian organizations identified recruiting and retaining skilled staff as a top five challenge in this year’s report would suggest that skills shortages in key areas persist, even if the overall trend is easing.”

How to achieve growth without neglecting innovation

For long-term success, Australian businesses should not neglect innovation, even if there are opportunities to achieve growth with relatively conservative investment. This can be done in several ways:

1. Take advantage of data-driven decision making
One of the benefits of moving to the cloud is the improved ability to use data for analytics. This capability should be used to identify which areas of the business would benefit most from a more substantial investment in innovation.

2. Adopt a hybrid innovation model
Investing in innovation doesn’t have to be all or nothing. Allocate a percentage of your budget to small, experimental innovation projects. And when some of them begin to prove themselves, it grows in nature

3. Participate in government, industry initiatives
The Australian government strongly encourages innovation, so take advantage of the opportunity to participate in the government’s extensive research and development grant programs or industry partnerships to offset the costs of innovation.

4. Focus on improving the workforce for innovation
While “personnel” may be less of a critical priority, be sure to develop innovation teams to lead efforts to explore and integrate new technologies.

By following these strategies, businesses can build resilience while remaining positioned for future innovation.