A new report shows only 57% of Australia and New Zealand leaders have a clear understanding of their tech expenses.

Businesses are facing mounting pressure as soaring technology costs force difficult choices between innovation and protecting the bottom line. With global tech spending rising 8% annually and outpacing revenue growth for many, budgets are feeling the squeeze.

 Cognizant, a global IT services firm, warns this trend will only intensify, driven by AI and cybersecurity. 

 “AI demands significant resources such as energy, advanced computing power, and skilled talent,” says Richard Blundell, ANZ Head of Business Consulting at Cognizant. “This will significantly impact service costs.”

 Meanwhile, the relentless threat of cyberattacks forces continuous investment in digital security, further straining budgets.

 Unsustainable growth of technology cost

 Businesses are increasingly feeling the financial squeeze as they transition from traditional capital expenditures (CapEx) to operational expenditures (OpEx) in IT.

 Technology has evolved into a critical element of products, services and operations, and its associated costs are now dispersed throughout an organisation.

 In the past, many legacy systems were long since paid for, but the shift to Software as a Service (SaaS) involves ongoing payments for everyday use.

 This move from CapEx to OpEx, coupled with the rising costs of SaaS licenses, is putting pressure on budgets, especially as legacy systems and technical debt – which were often deprioritised in favour of new capabilities and features – continue to demand attention.

 The adoption of offshoring, cloud computing, and robotic process automation (RPA) helped to alleviate costs over the last decade, but their impact is waning. Moreover, while this shift to OpEx is increasingly common, it brings new challenges as AI and cybersecurity expenses rise, further stretching operational budgets.

The growing disconnect over tech costs

 Cognizant's recent report, Building Technology Cost Intelligence in the Enterprise, highlights a troubling trend: business leaders are increasingly losing track of technology costs.

 A joint study with ADAPT reveals that only 57% of leaders now have a clear view of their tech expenses and what is driving them, down from 73% two years ago. This decline is partly due to the rise of decentralised spending and shadow IT, where business units make technology purchases outside of central IT control. It is also due in part to unanticipated cloud and software consumption.

 Even more concerning, 65% of leaders struggle to demonstrate the value of their tech investments, and 67% of leaders are unable to act effectively to control costs, making it challenging to prevent cost overruns and inefficiencies.

 This challenge is particularly evident in core modernisation programmes, where linking spending to clear financial results takes time.

 “Without a clear understanding of where the money is going and what it's achieving, it's tough for organisations to know what's working and what should be cut when budget limits are hit,” says Blundell. 

Balancing cost and value

 The study also highlights a divide among business leaders: some focus on cutting costs, while others prioritise maximising value across the organisation.

 This tension underscores the challenge of managing immediate financial pressures while striving for long-term value creation.

Rising tech costs – particularly licensing fees – drive overall expenses faster than inflation. Labour costs, especially in sectors like finance and mining, are also significant contributors.

 Despite these rising costs, many respondents didn't view process costs as an essential issue, suggesting untapped opportunities for savings.

Changing the economics of technology

 The good news is that there are significant opportunities to reduce overall spend and generate more value, quicker. Cognizant often finds large organisations often have a 30-50% uplift opportunity because of how they choose and deliver work, or the complex state of their landscape.

 A striking example is two businesses of similar size in the same sector that needed to meet identical compliance standards. One spent twice as much as the other due to inefficient processes and architectural complexity from years of neglecting tech debt.

 “Simplifying architecture often comes from systematically identifying and removing blockages,” says Blundell.

 Strategies for managing rising costs

 Instead of viewing tech spending purely as a cost, organisations should see it as an investment in efficiency and innovation.

 To help businesses manage their budgets more effectively, Cognizant identified four levers organisations can pull to better manage costs:

  • Value management

Prioritise work that delivers the most value to both customers and the business. To maximise impact, it’s crucial to identify what can be stopped or reduced, with clear visibility into activities and how they link to your business value streams and outcomes. 

  • Engineering excellence

Redesign work-delivery processes to reduce costs, speed up delivery flow, and improve quality.

  • Accelerating architectural simplification

Reduce architectural complexity to enhance business capabilities – faster, safer, and more affordably. Many organisations have underinvested in addressing tech debt, extending the life of outdated systems. Now, with the rising costs of change needed to stay relevant, they are paying the price.

  • Workforce partnering

Partner with scaled technology specialists to achieve workforce flexibility, economies of scale, and internal capability uplift. Avoid incentivising based on inputs alone. AI and innovation are readily available – leverage scaled partners to unlock these benefits. Bluntly, if you’re using vendors just to fill seats and procurement is focused on lowering rate cards, it’s time to rethink your strategy.

Navigating the future

Navigating the challenges ahead requires businesses to adopt new tools, fresh ideas, and data-driven choices.

Cognizant offers tailored consultancy services to help organisations better understand their tech costs and the value they provide, manage expenses more effectively and re-engineer their technology investment to boost business value and efficiency.

With a more precise grasp of costs and benefits, leaders can make smarter decisions and effectively balance innovation with budget control.

This approach will help organisations not just survive but thrive in the digital world, positioning them as tomorrow's market leaders.

Click here to read the full report.