By Dhaval Moogimane, Senior Partner, High Tech & Software, West Monroe
As AI continues to reshape industries, its impact on IT budgets and software spending is undeniable. Organizations are navigating a landscape where AI spend is accelerating, software costs are climbing, and IT budgets face unprecedented scrutiny to deliver measurable ROI. This convergence of forces presents both opportunities and challenges for software buyers and sellers. Companies that strategically address these trends can maintain a competitive edge, while others risk runaway costs.
To better understand these dynamics, West Monroe surveyed 310 U.S. executives in procurement, IT, and finance across banking, healthcare, manufacturing, high-tech, and utilities industries.
The Rising Tide of IT and Software Spend
IT spending is on the rise across industries. In the past year, 86% of organizations increased their IT budgets, and 85% expect further increases in the coming year. On average, 63% of companies are allocating 7% or more of their revenue to IT—a figure that reflects the ongoing digital transformation and rapid adoption of AI.
However, not all IT spending is growing equally. Software spending, in particular, is accelerating faster than other IT categories, driven by vendor consolidation, feature complexity, and AI integration. According to Gartner’s Worldwide IT Spending Forecast, software spending grew by 11.9% in 2024 and is projected to grow by another 10.5% in 2025, making it the second-fastest growing category after data center systems.
Given the critical role software plays in enabling digital transformation, process automation, and AI adoption, an increase in spend is expected. However, a meaningful driver of these higher costs is the annual price increases in SaaS and software subscription fees. For organizations, it is imperative to manage software spend strategically, ensuring you are maximizing value, achieving ROI, and fully utilizing the solutions they invest in. Proactively negotiating renewals and addressing cost escalations is essential to maintaining a competitive edge. On the other hand, software vendors must be prepared to demonstrate the ROI their solutions deliver, innovate to tap into AI budgets, and engage early and consistently with customers to secure renewals and sustain long-term partnerships.
The Financial Impact of AI
AI is a material line item in IT budgets now. Nearly 25% of companies allocate 10% or more of their IT budgets to AI initiatives, reflecting a significant shift in priorities. But AI’s influence extends beyond direct tool purchases. It impacts infrastructure, enterprise software, and data management, creating ripple effects throughout IT spending.
In fact, 91% of organizations expect their technology budgets to rise as they scale AI adoption. While AI is reshaping how work gets done, it is not delivering the immediate efficiency savings many had anticipated. A recent MIT study revealed that around 95% of custom generative AI pilot projects fail to deliver measurable business value. Reflecting this reality, only 8% of companies plan to reduce headcount or contractor use due to AI, while more than half are increasing investments in talent and partnerships to support AI initiatives. This dynamic cannot continue for very long, and leaders are increasingly going to demand that AI investments are able to demonstrate measurable returns. AI adoption presents a dual challenge for organizations. On one hand, companies must invest in AI to remain competitive. On the other hand, they must avoid redundant spending across multiple platforms and ensure that AI tools deliver measurable business outcomes. Without disciplined portfolio management, organizations risk overspending on AI and software, undermining their ability to innovate sustainably.
Strategies for Managing Software and AI Spend: A Buyer and a Provider Perspective
Software buyers are navigating multiple challenges such as rising costs and pressure to innovate, while dealing with constrained budgets. Over 60% of executives believe they are spending more on IT compared to their peers, creating significant pressure to justify spend, demonstrate ROI, and get the best deals as they negotiate contract renewals.
To address these challenges, buyers must adopt a more strategic approach to software investments. Developing portfolio management processes allows organizations to focus on fewer, higher-impact categories tied directly to business outcomes. Leveraging benchmarking data can also improve contract negotiations, especially with AI-enhanced tools. Additionally, proving ROI through operational metrics is essential for justifying IT spending, while preparing for workforce shifts such as changes in the mix of contractors, employees, and automation, ensures businesses remain agile as AI adoption grows.
For software providers, the pressure lies in justifying rising renewal rates while delivering measurable and quantified value. Buyers now expect AI capabilities as part of the package, but AI feature proliferation is not an answer. Buyers will be unwilling to pay for redundant features across vendors or features that see little sustainable use. To stay competitive, providers must focus on outcomes rather than features, helping customers optimize their entire tech stack. Innovative pricing and deployment models are also critical for winning the AI mindshare. Providers who share efficiency gains from AI with customers through adjusted rates or expanded services can build trust and loyalty in an increasingly competitive landscape.
Conclusion
The state of software and AI spend is defined by a delicate balancing act: buyers must align their investments with strategic priorities while controlling costs, and providers must deliver measurable value amid rising customer expectations and AI demands. For both groups, disciplined portfolio management, and a focus on outcomes are critical to navigating this evolving landscape.
AI is reshaping the future of IT and software spending, but its promise comes with challenges. Companies that approach AI strategically by investing in high-impact areas, avoiding redundancy, and demonstrating ROI will position themselves for long-term success. Conversely, those that fail to adapt risk falling behind in an increasingly competitive market.
By balancing innovation with cost control, organizations can unlock the full potential of AI and software to drive growth, efficiency, and differentiation in the years ahead.
For deeper insights and actionable strategies, explore the full survey report to see how leading organizations are navigating the evolving landscape of software and AI spend.
