Asia Pacific companies use public cloud services and outsource more than their global counterparts

IT leaders across the Asia Pacific and Japan (APJ) region have long embraced strategic sourcing, mixing in-house with sourcing from offshore captive units, contractors and fully fledged outsourcers. The annual global survey of CIOs by Gartner, Inc.’s Executive Programs bears this out, showing APJ to be slightly above of the global average when it comes to mixed or outsourced arrangements.

Only 19 percent of CIOs in APJ reported having wholly or mainly insourced IT arrangements, compared with 27 percent globally. A mixed model was used by 66 percent of APJ respondents (63 percent globally) and 14 percent were wholly or mainly outsourced, compared with a global average of 10 percent.

This is only the beginning, however. IT leaders across APJ intend to embrace strategic sourcing even more wholeheartedly, with 77 percent expecting to change their sourcing arrangements in the next three years.

IT Funding Comes From Outside the IT Budget

CIOs in the Asia Pacific and Japan (APJ) region reported increases in conventional IT budgets for 2014 of 0.9 percent, but estimated that only 65 percent of IT is funded from within the conventional IT budget, according to the survey.

APJ IT leaders reported increases in IT budgets for 2014 that exceeded the global average, 0.9 percent compared with 0.2 percent globally.

“APJ businesses expect IT to support growth and are increasing IT budgets accordingly,” said Gartner vice president Andy Rowsell-Jones. “Although not a large increase, this growth in IT budget at least allows APJ IT leaders to prepare the ground to capture the digital opportunities appearing in 2014.”

More notable, given the growth of the conventional IT budget, is the proportion of IT spending funded from outside of IT. In contrast to the global average, where 73 percent of IT funding is estimated to be funneled through the conventional IT budget, only 65 percent is estimated in APJ, leaving 35 percent of IT spend to be funded by marketing and other buying centers of IT services, such as sales, operations and R&D.

“This high level of unconventional funding from outside IT, while aiding growth, may contribute to integration issues in the short term and governance in the long term,” said Rowsell-Jones.

Filling the digital leadership vacuum

According to the Gartner report, most businesses have established IT leadership, strategy and governance, but have a vacuum in digital leadership. Only 11 percent of APJ businesses have appointed a chief digital officer. Although this is higher than the global average of 6 percent, Gartner believes that to exploit digital opportunities and ensure that the core of IT services is ready, there must be clear digital leadership and all business executives must become digitally savvy.

“Whether your enterprise has a CDO or not, we recommend that CIOs contribute to and, if necessary, lead the discussion about the implications of the ‘digital dragon’ on the enterprise. We expect the CDO role to become more common over the next five years. We expect its scope to grow, too.”

Across the globe, 42 percent of CDOs are currently focused on digital marketing, but this number is falling as more CDOs become true advisors on digital business strategy to the CEO and board of directors, and so they move into the arena of business strategy.

Technology focus

The top technology spending priorities of APJ CIOs for 2014 reveal two complementary goals: exploiting new technologies and trends, and renovating the core of IT.

Cloud was nominated as the top area for new technology spending by CIOs in APJ. Nearly one-third of APJ businesses are enthusiastic adopters of public cloud, indicating significant investments in the drive for greater agility. This places them ahead of their global peers: 31 percent of APJ CIOs say they have invested significantly in cloud compared with 25 percent globally.

Organizations in this region are greater users of public cloud services, especially platform as a service (PaaS) and infrastructure as a service (IaaS), but lower users of software as a service (SaaS) than the global average. Only 56 percent of APJ respondents are using SaaS, whereas this figure is much higher globally (72 percent). This implies that the majority of cloud services are being consumed by the IT function rather than business units directly.

“It’s unsurprising that investment in mobile app development and device management ranks second, given the rapid growth in adoption of mobile-data-enabled smartphones and tablets, the increased popularity of BYOD, and the explosion in the number of devices capable of participating in the Internet of Things,” said Rowsell-Jones. “This is followed by business analytics in third place, as enterprises in this region seek to better understand and manage the drivers of business performance.”

The second area of significant investment for APJ IT leaders is renovating the core of IT — in other words, ensuring that the infrastructure, as well as the main IT applications and services, such as data center, ERP and networks, are fit for purpose to ensure that the core is digital-ready.

Building bimodal capability

To address the age-old tension between needing to provide slow and steady IT (for critical systems), while responding “at the speed of digital” (for innovative, differentiating opportunities), digital-savvy IT leaders are managing their IT organizations in two modes: traditional and nonlinear.

APJ is slightly in front with the adoption of this model, with 48 percent of respondents saying they operate some form of bimodal IT, in contrast with the global average of 45 percent.

“If you are not already bimodal, consider experimenting with separating conventional and “nonlinear” IT work streams, with conventional looking after more traditional waterfall development projects, and nonlinear looking after more short-term, agile and lean startup opportunities,” said Rowsell-Jones.