There seems to be general agreement in the industry that IT is shifting to a utility model. What remains unclear is when we’ll get there, and what exactly it will look like. One thing is certain, though: big change is coming to the corporate IT department.
Since Nicholas Carr’s 2003 article in the Harvard Business Review entitled IT Doesn’t Matter set off a flurry of debate within technology circles, it has become clearer that the IT industry is indeed moving from a world of packaged applications, custom development and managed internal infrastructure toward a model where hardware and software is purchased on an as-needed basis from service providers.
The analogy often used is the hydro sector, hence IT as a utility. There was a time when many manufacturers owned their own hydro-generating facilities, because uninterruptible power was a business necessity and they couldn’t rely on utility companies to provide a reliable quality and level of service. When the hydro utilities could, self-generation was no longer cost-efficient or necessary.
It’s a bit more complicated with technology, but Jim Westcott, research manager, Canadian business transformation and process outsourcing services with IDC Canada in Toronto, said the shift has been building for some time.
“As IT becomes more ingrained in corporations, a lot of companies are trying to figure out if there’s a better way of sourcing, not only the technology, but the infrastructure components,” said Westcott.
Looking back, the shift is fairly easy to chart. Outsourcing helped companies get used to the idea of their IT resources and data residing elsewhere, and managed services went a step further. The success of on-demand, hosted application service providers like Salesforce.com has further paved the road toward utility IT.
At the end of that road, Westcott sees a model where companies buy access from a service provider, sharing infrastructure with other companies, and receive standardized solutions on a fee-per-service pricing model.
“The utility model is becoming sufficiently mature that it’s starting to get into more and more product areas in more and more varied verticals,” said Westcott. “(But) it’s still a fair ways off (from maturing).”
Peter Thompson, president and CEO of RIS, a Calgary-based application support and maintenance company, agreed that we’re still likely five to seven years away from realizing the IT utility model. Thompson said we first need to achieve utility-grade application software, with robust support and standardized maintenance and best practices.
Once we’re there though, Thompson said, the single biggest benefit for the enterprise will probably be reduced costs.
“Companies that can pay per usage of application, generally, they’re sharing that application with many, many companies, so the cost is spread over many companies,” said Thompson. “And you can get rid of many infrastructure issues as well.”
NEW CHALLENGES
With the new delivery model will come a challenge for vendors, who will need to develop new pricing models and new sales strategies to market their offerings. Thompson said companies will no longer be buying innovation for innovation’s sake, but instead will look more closely at the perceived business value.
Companies like Oracle, Microsoft and SAP are already re-architecting or talking about re-architecting their offerings for a Software as a Service model. The future is also coming for HP, which has begun testing the IT as a utility model internally within its global operations.
“It’s more than a theory,” said Bill Dupley, adaptive enterprise solutions manager for HP Canada. “It’s real, and we’re doing it right now in HP.”
Dupley said that for a number of years HP has been studying what commoditized IT will look like, how it will be sold, and how the company will need to be re-engineered to deliver it to others.
HP began moving to a utility model internally in 2004. Previously, he said IT was handled at the department level. When a department began a new project, it would purchase the IT hardware and software to support itself.
Dupley said that began to change when HP moved from each unit having its own Web servers to operating a shared Apache Web farm. That was followed up with a shared BEA WebLogic application platform and shared Oracle databases. HP is also in the process of consolidating its 85 global data centres to just six.
Now, instead of each unit purchasing its own hardware, the unit requests X amount of capacity and resources are dynamically assigned by the IT department.
“That’s in production now, all of HP is going that way,” said Dupley, noting that when you go to an electrical company you don’t say you need one nuclear reactor to make your company run. You say you need 300 megawatts, and how the utility generates it is its business. “That’s the way a utility works.”
Dupley said the fears and concerns HP had to overcome internally as it moved to an IT utility model mirror those that will need to be overcome in the wider marketplace, including fear over a loss of control and concern whether resources will be available when needed.
“Technologically it’s possible, but taking it to the market will take a few people who say ‘I believe it’s possible and I’m prepared to risk with it,’” said Dupley.
The only way to win them over, said Dupley, was to demonstrate that the utility model could provide better service at a lower price than each unit could on its own.
“We could provide better service levels at a fourth the price, and now our business units [are onside],” said Dupley. “But it had to be demonstrated.”
HP is already moving to the market with limited external utility offerings, and Dupley said its consulting arm is preparing to help potential service providers adopt the model. “I think it’s natural for a telco to do this,” said Dupley.
SIDE BAR
CULTURE SHIFT
How will the utility model affect the average IT staffer?
Peter Thompson, president and CEO of RIS, a Calgary-based application support and hosting company, said that for the enterprise, the biggest change with the new model is going to be a cultural one, moving away from a “We want to build everything from scratch” culture to a “We want to buy everything off the shelf” culture.
“It will be all about not who has the best technology but who is managing it the best,” said Thompson. “It’s an attitude shift.”
Companies will need IT staffers with more business skill sets and less technical skill sets, a transition that has already been underway but one which Thompson said will be accelerated under the new model. That’s because the innovation and creativity will be shifting more to companies like Microsoft and Google, he said.
“I think your average, run-of-the-mill financial institution on Bay Street in Toronto…you won’t see the innovative IT people in those companies anymore,” said Thompson. “It will be more the utility managers, whose job will be to bring value to the business.”
That shift will create staffing and skills challenges for companies. Linda Weaver, CTO of Toronto-based Smart Systems for Health Agency, said she believes many IT departments will likely shrink by 10 per cent in the coming years due to the loss of entry level positions used in the past to train junior staff.
“In our own environment, we have fewer jobs for what we consider tier one staff, which are kind of your first five years out of school,” said Weaver. “A lot of the work they do — gathering, recording and structuring information — is being done by automated tools and being presented to tier two staff, who are people with five to 15 years of experience.”
Weaver said this will ripple through the food chain of IT, as fewer tier ones mean fewer tier twos and threes down the line, and this will raise many issues in the future.
“Organizations today are looking for IT staff with experience in multiple technologies, but if we don’t give them a place to learn, they will never exist on other levels,” said Weaver.
Jim Westcott, research manager, Canadian business transformation and process outsourcing services with IDC Canada in Toronto, said the coming shift in mentality around corporate IT is the same as that which has happened in other corporate departments. Some companies have outsourced their human resources departments, for example, leaving the remaining internal HR staff to focus on more strategic functions, and Westcott sees the same happening with IT.
And there will still be innovation in the IT department, said Westcott. While Software as a Service depends on standardized delivery, Westcott said there will still be room for IT to customize the corporate interface into those utility applications to meet their unique business requirements.
“IT employees can shift from managing and maintaining hardware and software, and focus on application development activities to provide greater differentiation and competitive advantage for their company,” said Westcott.
Bill Dupley, adaptive enterprise solutions manager for HP Canada, agreed that innovation in the IT department is far from over; noting that while the utility analogy has some value, there’s still a big difference between electricity and IT. It’s still how you use the technology that will drive productivity, he said, adding that while everyone may have a Web page, not everyone’s Web page has a high visit-to-purchase ratio.
“There’s not much more you expect from the wall than current, but in IT it’s a lot more complicated,” said Dupley. “We can commoditize some things…but the way that technology is used is very much up to the customer, and that’s where the competitive advantage is.”
— with files from Rosie Lombardi
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