* Benefits of the utility model
Last time, we looked at the application of a utility model internally. In such a scenario, a utility model is used to create tiered services for the delivery of the IT resources of computing, networking and storage. Internal use of the utility model will give you price transparency – the ability to associate prices with metered or tiered IT services, providing transparency in the allocation of IT budgets or business-unit budgets.
This internal pricing mechanism will then put you in a position to make like-for-like comparisons with outsourced services. For example, if you can deliver storage resources for a total cost of $1 a gigabyte and you can externally source storage for 80 cents, then you have a clear basis for examining the outsourced option in more detail.
The other important side effect of a utility model is that it forces the business units to rationalize their IT use and apply IT resources in projects with a clear return on investment. In Nemertes’ research, we have often found companies in which a disproportionate amount of IT resources are consumed by inefficient and obsolete applications. Network audits can often reveal such misallocations of resources. IT managers suddenly discover that 40% of their WAN capacity is consumed by a legacy application with no commensurate revenue or profit returns.
The utility model does not have to be tied to a chargeback model (where business units pay for IT resources directly) to deliver price transparency. Even if the IT budget is not reimbursed, associating IT costs with specific line-of-business applications can lead to better allocation of scarce resources. In effect, price transparency will create either an explicit or implicit internal market for IT resources. Whether the market is used to drive competition among business units or just to align IT spending with the business strategy, price transparency ensures that IT resources are not wasted through misallocation.
Adopting an internal utility model has a subtle effect on the allocation of IT resources by challenging established paradigms of IT-as-overhead and shifting the organization’s model to IT-as-a-service. This fundamental shift in the way we think of IT is underway in many of the largest companies.
IT departments have been acting as internal service providers, especially in the network area, where MPLS has been adopted for internal use in the enterprise. For companies that see IT as a strategic and competitive differentiator, IT-as-overhead never made much sense. But without the ability to package and price IT resources, it was always difficult to make an association between IT innovation and a company’s competitiveness.
With a utility model, which associates specific costs to specific applications and services, IT managers can make the transition from a supply-driven model to a demand-driven model. When business units have to justify the use of IT resources as a specific line item on their budget, they must explicitly show the link between IT as a cost center and IT as a profit driver.
*** For more about the future of the data center, don’t miss Network World’s six-part series on The New Data Center. On Aug. 22, Network World will publish part 5 in the series, looking at advanced IP developments. On Oct. 4, we publish part 6 in the series, focusing on outsourcing, new data center-style, including an article by Andreas Antonopoulos that provides a layer-by-layer guide to the hottest new data center tools, aimed at application virtualization to intelligent networking. Click here to find archives of the past issues in the series.
