AI Is Eating Up to a Third of Technology Change Budgets

In its article on technology budgets, McKinsey targets a problem that many leadership teams would rather avoid. AI is no longer a small innovation line item. According to the authors, it is consuming up to a third of the budget allocated to change, meaning the projects intended to move the company forward. But if legacy applications, infrastructure, and licensing burdens remain in place, the result is not a more modern company. It is a more expensive and more complex one. The analysis draws on a survey of technology leaders in 17 large companies across sectors. McKinsey distinguishes between spending on run and spending on change. The strongest position belongs to companies that keep operating costs low while still allocating at least a third of budget to change. Those firms can fund cloud migration, automation, data modernization, and AI deployment without suffocating themselves under operating costs. The authors also create practical categories. So-called deliberate modernizers rebuild the technology base steadily and intentionally. By contrast, strained transformers try to modernize and adopt AI on top of an overloaded foundation. The difference is not marginal. McKinsey says the leading firms keep infrastructure costs at least 20 percent lower than peers. That margin becomes the room competitors no longer have. The people angle is equally important. The top-performing companies allocate about 16 percent of total technology spending to internal employees working on change, which the article says is 1.5 to 4 times more than others. That suggests AI cannot be outsourced indefinitely as a packaged solution. Companies need internal talent that understands architecture, priorities, and the link between technology and the business model. The practical recommendation is blunt but sound: every new AI investment should be tied to a decision about what will be shut down, consolidated, or simplified. Otherwise technical debt rises. McKinsey is pushing back against the comforting illusion that firms can finance the old world and the new world at the same time without consequences. They cannot. For management, this is a discipline in capital allocation, not a fashion trend in technology. The winners will be companies that do not merely add another tool layer, but use AI as a lever to simplify operations, speed decisions, and redeploy capital more intelligently.

AI Is Eating Up to a Third of Technology Change Budgets

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