In today’s rapidly evolving digital landscape, chief innovation officers (CIOs) face a dual challenge: driving innovation and navigating the tightening grip of budget constraints.
With 65% of businesses planning to increase technology spending, IT leaders can have more confidence that every dollar contributes to growth by focusing investments on business value, adopting a fit-for-purpose operating model and rationalizing the tech portfolio.1
The emergence of agentic AI gives CIOs a further golden opportunity to boost technology’s value.
Many are seizing on it. 2024 EY research found that 83% of CIOs expected their budget for generative AI to increase over the next 12 months, with 12% expecting an increase of more than 50%. Most CIOs reported having dedicated at least 10% of their annual IT budget to GenAI, a substantial investment for larger enterprises.
Yet according to Foundry’s 2025 State of the CIO report, nearly a third (31%) said budgetary concerns were diverting them from focusing on strategy. This needs to be addressed before it becomes a catch-22.2
Meanwhile, Gartner expects vendor price hikes to absorb nearly all the growth in worldwide IT spending this year.3
“Balancing strategic investments with the need to control costs begins with having full visibility into how IT dollars are being spent,” says Anja Allen, an Ernst & Young LLP (EY US) Technology Consulting principal.
Too often, IT budget reviews are conducted as a “big bang” exercise every three or four years. This allows costs to become entrenched and difficult to refine.
“Too little is done to give organizations the ability to manage costs on an ongoing basis and make cost optimization a core competency,” Allen says.
Candy shop syndrome
IT organizations often also fall victim to what Allen calls the “candy shop syndrome”: Business users, who have no stake in IT investment decisions, demand shiny new technology without conducting a thorough ROI analysis.
“IT tries to please everybody, costs go up, and everyone ultimately suffers as those investments are cut back,” she says.
The antidote: shared accountability. When IT and business stakeholders co-own cost decisions, investments become smarter and more likely to stick.
“As IT organizations build their budget management skills, they should look to redirect saved costs into investments that grow and transform the business,” Allen says.
Many adhere to the traditional ratio of 80% of the IT budget going toward maintenance and 20% to growth.
“If that’s the case, then you probably have opportunities to improve,” Allen says.
She believes the average organization should be closer to a 70:30 split, with world-class organizations approaching 60:40.
“You should always look for opportunities to shift spending to projects that grow and transform,” she says.
Rare opportunity
Artificial intelligence (AI) presents a key opportunity to put these principles into practice. While half of the leaders EY US surveyed noted a decline in company-wide excitement around AI, those committing 5% or more of their technology budget toward AI investments reported higher rates of positive returns than those spending less than that.
Allen suggests that tentative AI investments are less successful than commitments. The ROI for AI doesn’t always appear in conventional metrics.
For example, some clients have told her that using AI copilots for software development has enabled them to reduce the need for offshore programmers.
AI agents have shown the potential to invent new ways of managing workflows, creating order of magnitude efficiency improvements.
“We need to think about changing our operating model to drive new ways of working and on active change management,” Allen says.
The way to do that is by making AI tools broadly available. “You have to expose people to the technology and let them figure out what it can do for them,” Allen says. “AI is unlike a software package with certain functionalities and process flows. There are limitless capabilities to solve problems in new ways.”
The closer an organization is to that magic 60:40 budget ratio, the easier those investments are to make.
As technology continues to shape the future of business, CIOs must embrace the challenge of balancing cost control with strategic investment. Organizations can survive and thrive in a cost-constrained environment by leveraging AI and fostering collaboration.
Explore how EY US Consulting helps tech leaders rethink cost, reimagine value and lead through AI-driven transformation.
The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
1Foundry State of the CIO 2025
2Ibid
3Gartner, Gartner Forecasts Worldwide IT Spending to Grow 9.8% in 2025, January 2025