IT Budgets May Be Rising, but Inflation Is Killing Value, Tech Economist Warns

Why It Matters

Misaligned IT spending threatens margins and productivity, making outcome‑based measurement critical for competitive advantage.

Key Takeaways

• IT budgets up ~3% vs 6.9% inflation.
• Technology intensity measures efficiency, not just spend share.
• Modernization can cut cost growth while boosting revenue.
• AI adds data‑center costs, worsening affordability squeeze.
• Split IT spend: 70% core, 30% transformation portfolio.

Pulse Analysis

Inflation is reshaping the economics of enterprise technology. While many CIOs report modest budget increases, the underlying cost pressures from labor, cloud services, hardware and software are rising faster than revenue, creating an "affordability crunch" that erodes real investment power. Rubin’s data, drawn from a cross‑industry database of 2,000 firms, highlights a persistent productivity paradox: IT spend per employee has tripled in inflation‑adjusted terms, yet operating margins remain flat. This disconnect signals that organizations are not translating dollars into measurable business outcomes.

To address the gap, Rubin introduces the concept of technology intensity—a geometric metric that combines IT spend as a share of revenue and operating expenses. The higher the intensity, the more efficiently a firm leverages technology to reduce non‑IT costs. He also stresses continuous modernization, citing JPMorgan Chase’s application rationalization that trimmed infrastructure cost growth to 2‑3% while revenue rose 10%. However, the rapid adoption of AI intensifies data‑center expenses, adding new layers of cost that can further strain budgets if not managed strategically.

Rubin recommends treating IT budgets as a two‑tier portfolio: roughly 70% for core operations and 30% for transformational initiatives. This split encourages disciplined investment, with clear criteria to cancel projects that fail to deliver quantifiable returns. By aligning spend with outcomes such as operational efficiency, customer intimacy, and product leadership, firms can convert technology from a cost center into an economic engine, ensuring that rising budgets translate into real competitive advantage.