* IBM-AXA deal puts utility and on-demand computing models to work
In a $1 billion deal signed late last month, IBM and a French financial services firm may have created a new template for large outsourcing contracts.
IBM Global Services inked a six-year pact with AXA Group to manage the financial firm’s servers, mainframes and storage systems. Although billion-dollar engagements are not unusual for IBM, there are several unusual wrinkles in the AXA deal that may provide a glimpse of the future in outsourcing.
First, the AXA pact is one of the first to be reached under IBM’s emerging “on-demand” computing model. Big Blue will integrate AXA’s hardware and storage systems under a common computing structure, enabling AXA applications to tap infrastructure resources as they are needed. AXA will pay IBM for hardware and storage capacity on a per-unit basis, following the emerging trend toward utility computing.
By using – and paying for – only the hardware resources it needs at any given time, AXA expects to save “several hundred million” dollars over the contract’s six-year life, according to company officials. Although much has been said about both on-demand and utility computing in the outsourcing arena over the past year, AXA is one of the first enterprises to put a dollar figure on the potential savings of these new approaches.
AXA’s initial savings likely will come from the implementation of the on-demand computing structure, which will integrate the company’s current mix of hardware into a single operating environment administered by a common staff. Without the on-demand integration project, the utility computing aspect of the outsourcing contract would have been far less effective, because disparate systems would still have to be managed independently.
The other unusual aspect of the IBM-AXA contract is that AXA will retain control of most of its IT functions and resources. Instead of moving over to IBM, AXA’s IT staff will remain employees of the financial services firm. AXA will retain control over IT strategy; technology relationships with vendors; applications and database development and maintenance; and management of business technology.
While it is not unusual for enterprises to keep key aspects of IT – such as software development – in signing outsourcing deals, the breadth of AXA’s purview in the IBM deal is surprising. To some extent, AXA’s high level of control is made possible by the utility computing model – IBM Global Services is providing hardware capacity and skill resources, but it is not changing the applications. Essentially, IBM is providing the computing power, but AXA is making the decisions on how to use it.
This high level of control is likely to make the utility computing model attractive to many enterprises, particularly those that have invested heavily in application innovation and IT staff development. Enterprises that want to cut costs and improve infrastructure efficiency – without completely handing over the keys to their IT department – may find that utility computing is a viable alternative.
However, it is worth stating again that AXA’s utility computing contract would not work nearly as well if it did not implement the on-demand computing infrastructure at the same time. For utility computing to work, there must be some integration to the computing infrastructure and a common method to request capacity. For AXA, the on-demand initiative will provide that integrated infrastructure.
The on-demand approach may not fit with every organization’s IT strategy, since it demands comprehensive systems integration. But for those that can use both, the combination of an on-demand computing strategy and the utility computing outsourcing model could be an effective one-two punch.
