Bechtel's CIO tells how the construction giant is transforming its IT operations by emulating practices of Internet leaders such as Amazon.com and Google.
If you could build your IT systems and operation from scratch today, would you recreate what you have? That's the question Geir Ramleth, CIO of construction giant Bechtel, asked himself three years ago.
The question-- and the industry benchmarking exercise that followed -- prompted Bechtel to transform its IT department and model it after Internet front-runners YouTube, Google, Amazon.com and Salesforce.com. After all, these companies have exploited the latest in network design, server and storage virtualization to reach new levels of efficiency in their IT operations. Ramleth wanted to mimic these approaches as Bechtel turned itself into a software-as-a-service (SaaS) provider for internal users, subcontractors and business partners.
Bechtel also designed a new Gigabit Ethernet network with hubs at Internet exchange points that it is managing itself instead of using carriers. Now, Bechtel is slashing its portfolio of software applications to simplify operations as well as the end user experience.
Dubbed the Project Services Network, Bechtel's new strategy applies the SaaS computing model internally to provide IT services to 30,000 users, including 20,000 employees and eventually 10,000 subcontractors and other business partners.
We operate "as a service provider to a set of customers that are our own [construction] projects," Ramleth said. "Until we can find business applications and SaaS models for our industry, we will have to do it ourselves, but we would like to operate with the same thinking and operating models as [SaaS providers] do."
Nicholas Carr, author of several books including "The Big Switch: Rewiring the World from Edison to Google" which chronicles a shift to the SaaS model, called Bechtel's strategy a smart move.
"For the largest enterprises, the very first step into the Internet cloud may well be exactly what Bechtel is doing: building their own private cloud to try to get the cost savings and flexibility of this new model," Carr says. "Large companies have such enormous scale in their own IT operations that the outside providers, the true utility providers, just aren't big enough yet…to make them a better option."
Carr predicts, however, that Bechtel's do-it-yourself SaaS strategy will be an interim step until the company is able to fully outsource its IT infrastructure. That may take as long as 10 years, he adds.
"My guess is that over time -- and maybe it will start with the HR system -- Bechtel will look outside and start running some aspects of its IT operations off of [SaaS] sites," Carr says. "Then its cloud will start to blur with the greater Internet cloud."
Bryan Doerr, CTO of utility computing provider Savvis, says many enterprises like Bechtel are interested in the SaaS model for applications that don't differentiate them from their competition.
"The move to SaaS is simply a different delivery model for an application that has little to do with intellectual property or innovation," Doerr says. "Once you make the decision to outsource to somebody else's software, the decision to host it yourself or use a SaaS provider is about economics…For many enterprises, licensing by end user seat is much more efficient than licensing as a bulk package, buying servers and storage and data center space, and then training people to self-host the application."
Business drivers for SaaS
Several business challenges are driving Bechtel's SaaS strategy.
Bechtel is a leading construction, engineering and project management firm with 42,500 employees and 2007 revenue of $27 billion. The privately held company is working in more far-flung locations, and it has difficulty finding and retraining talented employees to work on its projects.
Bechtel's employees are demanding business software that is as intuitive as popular Web sites. The company doesn't have time to train end users in software applications, nor can it afford to maintain hundreds of applications.
"We needed a different way of doing applications and supporting them," Ramleth says. "We have more employees coming into the organization, and we need to get them up to speed fast."
Another key business challenge is protecting Bechtel's intellectual property when so many subcontractors and business partners have access to its network and data.
"A third of the people on our network are non-Bechtel employees. That exposure forms a security risk," Ramleth says.
Bechtel started its transformation by trying to figure out how to revamp its software applications to operate more like leading Web sites. But what Bechtel discovered is that it had to fix the underlying IT infrastructure -- including data centers and networks -- before it could change its applications.
"Not only do you have to solve the IT architecture and the way you operate it, but you have to make sure that IT is accommodating Web applications that can operate more in an Internet mode than in an intranet mode," Ramleth explains.
Perhaps most impressive is that Bechtel is transforming its IT operations without additional funding. Bechtel would not release its annual budget for its Information Systems & Technology group, but the company said it has 1,150 full-time employees in its IS&T group and 75 to 100 contractors.
"We've mostly paid for this by re-allocation of the budgets that we otherwise would have used for refresh and maintenance," Ramleth says. We're "doing a total change of the traditional way of doing things, and we have done it with very little, if any, incremental funding."
Benchmarking the leaders
The transformation began with Bechtel's IS&T group spending a year trying to figure out how to drive faster adoption of consumer technology such as Google and Amazon.com across the company.
"We asked ourselves: If we started Bechtel today, would we do IT the same way we are doing it today? The answer was no. If we had a clean slate, we wouldn't do it the way we were doing it," Ramleth says.
Ramleth decided to benchmark Bechtel's IT operation against leading Internet companies launched in recent years. He zeroed in on YouTube, Google, Amazon.com and Salesforce.com for comparison.
Bechtel's IS&T staff studied the available information about how these Internet leaders run their IT operations, and they interviewed venture capitalists with experience investing in consumer applications.
Bechtel came up with estimates for how much money YouTube spends on networking, Google on systems administration, Amazon.com on storage, and Salesforce.com on software maintenance. What Bechtel discovered is that its own IS&T group was lagging industry leaders.
"What we found were tremendous discrepancies between our metrics and what these guys were dealing with," Ramleth says. "You can learn a tremendous amount from [companies] that have the privilege of starting recently."
When Bechtel researched YouTube, it came to the conclusion that YouTube must be getting much less expensive network rates because otherwise it wouldn't be able to send 100 million video streams a day for free. Bechtel estimated that YouTube spent $10 to $15 per megabit for bandwidth, while Bechtel is spending $500 per megabit for its Internet-based VPN.
YouTube was "paying a fraction of what we were paying," Ramleth says. "We learned you have to be closer to the high-bandwidth areas and not haul the data away. We decided we better bring the data to the network, rather than bring the network to the data."
Next, Bechtel studied how Google operated its servers. Bechtel estimated that Google used 12 system administrators for every 200,000 servers, or roughly 17,000 servers per system administrator. Bechtel, on the other hand, was operating with 1,000 servers per system administrator.
"What we learned is that you have to standardize like crazy and simplify the environment," Ramleth says. "Google basically builds their own servers by the thousands or gets them built in a similar fashion, and they run the same software on it. So we had to get more simplified and standardized."
Bechtel studied Amazon.com and determined that Amazon.com must have a better storage strategy if it is offering disk space for a fraction of Bechtel's internal costs. While Amazon.com was offering storage for 10 cents per gigabyte per month, Bechtel's internal rates in the United States was $3.75 per gigabyte.
Ramleth says the key to reducing storage costs was not only to simplify and virtualize the storage environment, but also to drive up utilization.
"Our average utilization was 2.3%," Ramleth says. With virtualization, "we now expect to have utilization in the 70% to 75% range." However, he added that the new virtualized storage environment is "more complex to operate."
Bechtel turned to Salesforce.com for its expertise in running a single application with millions of users. In contrast, Bechtel operates 230 applications, and it runs 3.5 versions per application, which means it maintains approximately 800 applications at any given time.
"When you look at Salesforce.com, not only are they running one application, but they are running one version and they are only running it in one location," Ramleth says. "They upgrade that application four times per year, and they don't disrupt the users by having to retain them. Every time we have a new version, we have to retrain our users."
With its benchmarking data in hand, Bechtel decided to revamp its IS&T operations to model itself as closely as possible after the SaaS model pioneered by these four Internet leaders.
"If you take the ideal world, everything is done as a service: computing, storage, software and operations," Ramleth says. "It's maybe the ultimate goal…but if you start where all the enterprises are today, that's a very long road to go."
A trinity of data centers
Once Bechtel committed to the SaaS model, the firm realized it needed to revamp its data centers to copy Google's standardized, virtualized model.
Bechtel was operating seven data centers worldwide, but last year it replaced those with three new data centers, one each in the United States, Europe and Asia. The three data centers have identical hardware from HP, Cisco, Juniper and Riverbed. On the software side, Bechtel is using Microsoft and Citrix packages.
"The hardware is the same, the software is the same, and the same organization [is] managing all of them," Ramleth says. "It's like one data center, but it operates in three different locations."
The new data centers have virtualized servers with utilization of around 70%, Ramleth says. These centers boast the most energy-efficient design possible, so they are a fraction of the size of the older data centers and use significantly less electricity.
"In square footage, we're down by a factor of more than 10," Ramleth says. "Two-thirds of the power in a data center is chilling, and if I don't have to chill that extra space…I get a dramatic reduction in power needs."
The three new data centers are operational, and Bechtel expects to close all the older data centers by the end of 2009.
Ramleth says one of the hardest aspects of the IS&T transition was closing data centers upgraded as recently as 2005.
"Six of our data centers were relatively modern. That was a tough thing. We finished a [data center]] consolidation in 2005, and already in 2006 we started talking about doing a re-do of our data centers again. [Our IS&T staff] felt like they hadn't really gotten dry from the last shower before they started getting wet again," Ramleth says.
At the outset of this research project, Bechtel was operating an IP VPN that it had installed in 2003. To drive down the cost of its network operations, Bechtel has redesigned that network using YouTube's do-it-yourself model.
Bechtel has a Gigabit Ethernet ring connecting the three new data centers, with dual paths for failover. Bechtel is buying raw bandwidth from a variety of providers -- Cox, AboveNet, Qwest, Level 3 and Sprint -- but it is managing the network itself.
"We buy very little provisioned networking," Ramleth says. "We do it ourselves because…it's less costly than buying from others….We go to the Internet exchange points, to the carrier hotels, where the traffic terminates."
So far, Bechtel has migrated the three new data centers to the new network, along with nine offices: San Francisco; Glendale, Ariz.; Houston; Oak Ridge, Tenn.; Frederick, Md.; London; New Delhi and Brisbane.
The new network "is about the same [cost] as what we paid before, but it offers a heck of a lot more capacity," Ramleth says, adding that Bechtel is getting around 10 times more capacity for the same amount of money.
Ramleth says the biggest cost-saving of the new network design came from aggregating network traffic at Internet exchange points, which is what leading e-commerce vendors do.
"We found that for the amount of traffic and the amount of capacity that we put it in, we could do it cheaper ourselves," Ramleth says. "This is not something for a small or medium-sized enterprise, but we found that we were big enough to be able to do it ourselves."
Simple, secure software
The next aspect of transforming Bechtel's IS&T operations is migrating its applications to the new SaaS model.
Bechtel runs 230 software applications, 60% of which were developed internally. Ramleth says he hopes to have 20 to 30 of the firm's key applications converted to the new SaaS model within a year.
So far, Bechtel has a dozen applications running in its new data centers, including e-mail, a Web portal, a time record system, and a workflow/document management application.
Bechtel's ERP applications, including Oracle Financials for accounting and SAP for human resources and payroll, will be migrated to the new infrastructure by the end of 2009, Ramleth says.
"In the next six to nine months, we will be getting applications in and getting them certified in this new environment," Ramleth says. "The ones that we can't totally certify, a few we will let die….For the low usage, infrequently used applications that are not as critical, we are using Citrix solutions to solve some of them so we don't have to do too much with them. We're doing that as a bridge to get from our past to our new infrastructure."
Bechtel's new portal is key to its SaaS strategy and its goal of having software applications that are as simple to use as Google.
In its research, Bechtel found that 80% of its end users want to get information out of an application but don't need to understand how it works. With the new Project Services Network Portal, Bechtel's end users can interact with applications without requiring training.
Bechtel built the portal using Microsoft's SharePoint software. Ramleth says the portal "gives us consumerization and also gives us the new security model."
Ramleth likens Bechtel's security strategy to Amazon.com's approach. With Amazon.com, users can browse freely and security is applied when a purchase is made. Similarly, Bechtel is trying to create Web applications that apply security only when needed.
"We will apply different forms of security based on what's going on," Ramleth says. "By using the portal, we can limit what you have access to by policy, by role, in a way where people won't necessarily go in and find [our intellectual property] without having the right to access it."
Ramleth says the new portal and the policy-based security model it provides are among the top benefits that Bechtel is gaining out of the IS&T transformation effort. He says this benefit will be fully realized when Bechtel's business partners are migrated to the portal, too.
The SaaS model allows us "to bring in a different cost model that can afford us to have a high-capacity, global, collaborative work environment," Ramleth says.
The risk for enterprises that don't start a SaaS migration strategy soon is that their IT organizational structures will be a competitive disadvantage, Ramleth warns.
"If they don't start thinking about this soon, the changeover in the future will be really hard," Ramleth says.