"Pay-As-You-Go" IT Catching On

Execs viewing "on demand" as way to reduce costs and complexity, but not all will see big benefits, research reveals

Execs seeing "on demand" as way to reduce costs and complexity, but not all will see big benefits, research reveals

Westport, CT — April 5, 2004 — "Pay-As-You-Go" (PAYG) information technology (IT) is delivering real business benefits and is moving beyond early adoption as it accelerates rapidly toward the mainstream, but not every company is poised to reap substantial benefits from this new model, according to a new research report from IT strategy firm Saugatuck Technology and research partner, CFO Research Services.

Termed "on demand" by some, and "adaptive enterprise" or "utility computing" by others, PAYG describes a model for solutions delivery under which IT resources are available for use on an as-needed, as-used basis. Such a capability provides flexibility for businesses to grow and change, and to compete effectively while managing expenditures on more of a "utility" basis.

According to Saugatuck, not only are 73 percent of business, finance and IT executives now familiar with PAYG as a concept, but current users are convinced that PAYG can help reduce costs and complexity, and enable competitive advantage.

"This is the next sea-change in business computing," said Mike West, senior program director at Saugatuck and director of the firm's PAYG research program. "While PAYG represents a major shift in the way that IT projects are funded, deployed and managed, the potential benefits go beyond dramatically reducing capital and operating costs. Instead, the promise is one of delivering higher [return on investment (ROI)], being more responsive to changing business needs, and accelerating how quickly the business benefits of technology can be realized."

Mary Driscoll, president and editorial director of CFO Research Services, added that chief financial offers and chief information officers are aware that planning and process bottlenecks both are ubiquitous and prevent the rapid reallocation of resources as new market opportunities and threats emerge. "As companies eliminate these constraints, and learn how to turn on a dime, the true potential of PAYG will kick in," Driscoll said.

The research findings indicate that nearly 20 percent of companies are already taking advantage of PAYG, with more than 50 percent of executives citing business benefits. At the same time, Saugatuck's analysis reveals that this mini-revolution will take time to unfold, for both the underlying technologies that support its longer-term vision, as well as the business applications and sourcing models that will help make it a reality.

Further, it won't be a panacea for all companies in all situations, the researchers noted. Early adopters who have gotten the biggest returns are those that have highly variable infrastructure and application requirements, or who have pockets of internal customer demand that would be prohibitively expensive to fund under normal operating scenarios.

Saugatuck conducted this independent research study was from November 2003 through March 2004. Partial funding for the publication of the research was provided by IBM, Employease and Perfect Commerce. In total, 310 senior business, financial and IT executives participated in the study, and more than 30 were interviewed for the report.

For more information regarding "on demand" computing models, see the article "Cutting Through the 'On Demand' Hype," the Net Best Thing column in the December/January 2004 issue of Supply & Demand Chain Executive.