Freshness-Dated IT Service Model

It's a vision that hits home in this era of IT/business accountability, but implementations so far have been flawed. ASPs that sprang to market in the late '90s with hosted engineering, manufacturing and other high-end applications failed to anticipate that most companies wouldn't cede control of such critical, often custom apps, even for the convenience and cost savings of utility-like service. Furthermore, most ASPs haven't provided consistent service levels, a reason companies have been slow to outsource even commodity apps such as e-mail.

Salesforce.com, which runs CRM applications for some 6,000 companies, is one of only a handful of pure ASPs to survive the dot-com shakeout, but all the big IT vendors are now eager to move their customers to some services-based software model. Under its recent 10-year, $3 billion outsourcing deal with Procter & Gamble, for instance, HP will not only manage data centers and IT infrastructure for the consumer goods maker, but also (with partners) develop and maintain applications for P&G's operations in 160 countries.

Still, IBM's seven-year, $4 billion outsourcing agreement with American Express is more representative of what companies are comfortable handing over to third parties. IBM will manage American Express' computer systems and Web sites worldwide, but it won't take over what the financial services company considers to be core technology competencies: strategy, strategic relationships and the development and maintenance of applications and databases.

Today's Utility

Where the IT utility model holds more immediate promise--and where the likes of IBM, HP and Sun are well positioned today--is in metering hardware capacity, letting customers buy only as many CPUs and as much disk space as they need, when they need it. IBM, for one, is enhancing its ability to deliver on that promise with its acquisition this month of Canadian developer Think Dynamics, whose technology helps customers reallocate storage and other computing resources during peak periods.In assessing the IT services market, Gartner differentiates among pure utility relationships, which focus on cost reduction and consistent service delivery; enhancement relationships, which improve time to market and other measures of business productivity; and transformation relationships, which key on innovation. Customers must do a better job of managing all three kinds of relationships; Gartner estimates that less than 30 percent of companies have a formal structure for doing that. As a result, benefits accrue mostly to the IT service supplier, or the relationship deteriorates entirely.

No coincidence, then, that Gartner predicts half of customers will consider their IT service relationships unsuccessful this year. In the absence of creative, truly flexible new approaches by vendors and customers alike, even that prediction sounds optimistic.

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