At a recent Enterprise Mobility event, I spoke with a few Asia-based IT directors about their journey in the age of consumerization of IT, and how they were dealing with Bring-Your-Own Technology (BYOT) at work. Their responses ranged from ‘fear of the unknown’ – as in ‘how do we deal with this trend?’ to ‘paralysis by analysis’ – as in ‘let’s arm ourselves with as much information as possible, and analyze it to death.’

The issue is – their employees are already accessing corporate email on their own mobile devices – which means that these IT managers are scrambling to catch up to managing BYOT in their organizations. In fact, an IT head at a large FMCG organization admitted that he did not know where to start managing BYOT.

Security and compliance were key concerns for these IT folks, and their concerns are valid. Trend Micro predicts, for example, that 91% of targeted attacks begin with spear-phishing, a highly targeted type of phishing aimed at specific individuals or groups within an organization. This was heightened in a recent spear-phishing attack on a South Korea bank. The security provider also predicts that there will be 1 million malicious Android apps in the wild by the end of 2013 – another red flag for organizations coping with the rise of Android devices at their work place.

Organizations in growth markets across Asia have not traditionally been heavy consumers of outsourcing services. Having lots of on-premises hardware still carries some prestige for local CIOs, particularly in China and India. The availability of relatively inexpensive IT staff in local markets has also helped them deliver acceptable service levels to the business. Until now, that is. The combination of quickly rising IT salaries, increased competition from regional and even global expansion, and growing demands among business stakeholders to more effectively engage customers has put pressure on CIOs to increase the performance of their organizations.

More and more CIOs I speak with are struggling with how best to effectively transform their IT capabilities and meet fast-changing business requirements. In particular, whether to embark on this transformation journey alone or leverage outsourcing partners. In a recent report, I profiled organizations in Asia that are leveraging external service providers to accelerate their IT maturation. One example is a manufacturer with 10,000 employees and operations across Asia that outsourced its entire IT infrastructure environment to improve and homogenize service levels. Another is a large Indian bank that outsourced its entire IT department to a service provider and improved its maturity level from a 3 (on a scale from 1 to 10) to a 6 in less than a year.

Over 40% of senior business executives are looking to suppliers and external parties to co-develop and deliver measureable business outcomes. Telling suppliers to forget their old pricing metrics and focus instead in delivering value while also sharing risks and rewards requires a new set of skills on both sides of the negotiating table. This is a real challenge for both suppliers and buyers, and it takes both parties out of their comfort zones into new territory for risk management, project control and revenue sharing.

Forrester’s Forrsights data reveals business executives want to see more value delivered from IT projects and more outcome-based contracts. This is a priority for them in the next few years and sourcing professionals must develop and enhance their skills in this key area or risk getting left behind.  

Whether it’s increasing revenues, driving more client subscriptions, cutting costs, facilitating more paperwork processing in less time or driving up customer satisfaction and retention, some IT companies are now offering outcome based contracts and are happy to be paid purely on the results.

Unfortunately for some of today’s technology giants, clients don’t want to pay anymore for software licenses, hardware products or time & materials staffing. They want the suppliers to have ‘skin in the game’ and want to pay based only on the value delivered and the outcome achieved.   

To help their organizations navigate through the emerging world of business outcome based contracts, we have identified three key principals of change that both suppliers and buyers will need to address:

One of the major concerns of the sourcing community is that suppliers are unable to deliver the cost and service benefits that had been agreed upon at the start of the contract. As outsourcing contracts become more specific in requirements, clients expect their suppliers to possess intimate knowledge about the industry they operate in — apart from being well-versed in specific technology areas. This is over and above the constant and overarching need to keep costs down. It’s a constant point of pain and one that I’ve seen frequently in my five years as an outsourcing analyst.  

Although outsourcing, especially to India, remains an attractive option for deriving cost savings, I see increasing concerns about the quality of the services. As the Indian economy strengthens, the currency arbitrage that the Indian IT Services vendors used so heavily to their advantage is eroding. Moreover, the rising cost of living across major IT hubs in India is fueling wage inflation and attrition, and squeezing the margins for the suppliers. For example, between 2006 and 2012, Infosys’ operating margins have fallen from about 33% to 29%, TCS’ from around 30% to 27%, and HCL’s from around 24% to 15% (all revenues considered in Indian Rupees) in the same time frame.

In this environment, I am often asked about three things: 1) the technical and delivery capabilities of smaller Tier II Indian vendors, 2) the viability of engaging with them, and 3) the feasibility of outsourcing to alternative offshore locations (other than India). To answer these questions: