Two years ago, George Surdu called a meeting with sales representatives from Ford Motor Co.s major technology vendors—IBM, Hewlett-Packard Co., EMC Corp., AT&T Corp., Sun Microsystems Inc. and Siemens Corp., among others—and gave them what appeared at first to be very bad news. "Were never going to buy another piece of equipment from you," the director of IT services at Ford, in Dearborn, Mich., told them.
After helping them off the floor and back into their chairs, Surdu told them what he really meant. Rather than provisioning mainframes, storage, servers, workstations, PBXes and other IT equipment the old-fashioned way—by ordering it, paying for it and installing it—Ford wanted its major vendors to take responsibility for keeping extra capacity on-site and ready to go.
That way, Surdu said, whenever Ford needed more mainframe mips, server cycles or storage capacity, it could just flip a switch. And, oh yes, Surdu told the vendors, Ford wanted to pay them only for the capacity it used. Sort of the way you just flip a switch to turn on a light and pay your utility for the power you consume. Surdu, in fact, dubbed the idea Fords utility model for procuring IT hardware.
The idea of tons of expensive gear lying idle and gathering dust just in case Ford needed it didnt sit well at first, Surdu said. He and other Ford IT executives, however, kept pushing. And now, all their major hardware vendors have either completely transitioned their Ford business to the utility model or are pilot testing the idea. All data center equipment is now purchased using the utility approach. Some Ford vendors, like HP, are even considering rolling the idea out to other large enterprise customers.
The same forces pushing Ford to revamp its software development organization, Surdu said, are pushing the automaker toward the utility model for hardware provisioning. In the pre-e-business era, when it often took years to roll out major systems and computing-capacity needs were relatively predictable, it was OK to take months negotiating with hardware vendors and waiting for them to deliver systems. But that doesnt work for e-business. Fords software developers are taking an average of just four months to pop out new systems. And its hard to predict how much capacity new business-to-consumer Web-based applications will require. "So I needed to have a way to ensure that I have the capacity sitting there so I never have to say no to the business," Surdu said. "The utility model has been extremely effective."
The utility approach has another advantage for Ford: It turns what had been expensive assets on Fords financial books into deductible business expenses.
Under the utility model, Ford pays vendors for only the capacity it uses. Ford has negotiated capacity measures—mainframe mips, storage gigabytes or server capacity units based on the TPC-C benchmark—with vendors. Ford has also built continuous price reductions into the model.
So whats in it for Fords vendors other than keeping the auto giant happy? Vendors say the approach makes selling to Ford quicker and less expensive. In addition, its a way to possibly expand the products they sell to the company. And some, like HP, see the utility model as a transitional approach on the way to Ford and other large customers buying capacity from them online via a hosted application service provider model.
"Weve tried to move them toward the Internet-based model," said Mike Needham, HPs global client business manager for Ford, in Allen Park, Mich. "Right now, theyre very involved with whats behind the curtain—what equipment is there and what operating environment. Over time, however, that will change. We expect theyll be more comfortable with an Internet-based approach."