Leaders plan to reinvest savings from cost optimization and productivity gains in transformation and customer experience enabled by AI

New survey research from leading global technology research and advisory firm Information Services Group (ISG) (Nasdaq: III) finds enterprise leaders plan to increase spending on AI by an average of 5.7 percent in 2025, despite much more modest increases in overall IT budgets, and reinvest savings from cost optimization and productivity into AI-enabled transformation.

“Overall IT budgets are expected to rise 1.8 percent in 2025 – in line with inflation – but AI, security, applications and customer experience initiatives are seeing higher increases directed at strategic long-term investments,” said Alex Bakker, ISG distinguished analyst and co-author of the study. “Our study found the biggest spending increases will go to AI, where enterprises are looking to establish a foothold and drive growth.”

The newly released ISG Market Lens™ 2025 IT Budgets and Spending Study found global IT spending on AI will rise an average of 5.7 percent 2025, with nearly a quarter of respondents planning to increase spending on AI initiatives by 10 percent or more. With an overall average IT budget increase of approximately $11.5 million for 2025, AI is expected to account for an average spending increase of $3.4 million, or 30 percent of the overall budget increase.

Spending on IT security solutions and services, IT applications (including software-as-a service), platform-as-a-service, infrastructure-as-a-service and customer experience initiatives will also outpace the average budget increase.

“Enterprises are continuing to focus on cost optimization and efficiency programs to fund transformation and customer experience enabled by AI,” said Michael Dornan, principal analyst and co-author of the study. “This will impact how organizations manage their provider ecosystem and how they source the skills they need for these new investments.”

Almost half of IT spending goes to internal staff, external augmented staff or fully outsourced staffing, which drives the focus on productivity improvements. Overall spending on staff is expected to increase marginally by 1.1 percent for internal staff and less than 1 percent for outsourced or augmented staff in 2025.

The study indicates the overall number of providers engaged will stay the same for most enterprises, with more provider consolidation than expansion. More than one-third of organizations expect to expand engagement with their largest provider, and around half of respondents expect to engage with new providers for niche projects or related skills and capabilities.

“In 2025, service providers have a unique opportunity to act as strategic partners for transformation and as sources of innovation around critical niche capabilities such as AI,” Dornan said. “The number of providers in a typical enterprise ecosystem that are neither strategic nor niche will likely shrink next year, reinforcing the importance for providers to have a deep understanding of their clients’ business challenges and a capabilities roadmap that aligns with industry needs.”

The ISG study, conducted globally in October and November 2024, surveyed 300 executives in G2000 enterprises in the Americas, Europe and Australia/New Zealand with decision making responsibility for IT spending in their organization.

ISG Market Lens™ buyer behavior studies combine findings from surveys of senior-level global executives with expert ISG research and analysis on market trends and strategic business initiatives. Recent studies explored GenAI, mainframes, AI, cloud, application development and maintenance, BPO, cybersecurity, global capability centers and sustainability.

Contact ISG for more information on ISG Market Lens research.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

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