Pay-as-you-go can be most cost effective way to go

Information technology at Toronto’s St. Michael’s Hospital was in failing health in 2000.

A steady stream of additional connections, a never-ending parade of new distributed applications and the voracious hunger of users clamouring for more bandwidth had crippled the hospital’s system.

The health care centre’s communications network, set up to serve 750 users, was stretched well beyond its design limit by the demands of more than 1,400 people. The patchwork of mismatched network equipment worked poorly. There were no secondary systems available when communication failures happened.

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And failures happened daily, because the hospital’s networks were wired like spaghetti. The masses of various types of cabling hadn’t been logically engineered, which meant tracing problems back to their origin was like weaving through a maze. The network was slow, unreliable and ready for the scrap heap.

With literally no money available to build a new network, the prognosis seemed hopeless. But a white knight appeared: The hospital’s resourceful chief information officer, who identified a path to better IT health.

He creatively concluded that what might work was computing power purchased as a “utility” resource, similar to buying electricity or water, since the hospital couldn’t afford an estimated $4-million in up-front costs for needed upgrades. A “utility provider” was required – someone to build and own the St. Mike’s next-generation communication infrastructure, then charge the hospital for what it used.

A willing taker was found in Getronics Canada Inc. Both the IT service provider and the hospital hammered out a deal that became one of the first modern-day Canadian examples of pay-per-use computing. Getronics installed and owns all of the network equipment and cabling at the hospital. St. Mike’s in turn pays a monthly fee based on the “active ports” and bandwidth used, and the applications management support that is required. If more performance is needed or new users are added, then the hospital pays an additional fee.

The St. Mike’s example mirrors many of the IT challenges faced by other organizations in Canada. There are a whole lot of companies limping along with antiquated computing systems that no longer serve their business needs and certainly won’t support new business functions necessary to succeed in a changing economy. Yet capital dollars for new equipment are tough to find.

Meanwhile, operational budgets that cover day-to-day business expenses are mainstays and – as the astute St. Mike’s CIO readily realized – a source where dollars might be found for new initiatives.

Pay-as-you-go styles of computing are cropping up all over. Offerings such as Web hosting (the purchase of computing infrastructure needed to support Web applications), and application service providers (renting or leasing applications and related support services from a third-party), are two popular examples of the pay-as-you-go approach.

Among the more recent illustrations was a deal last week between IBM Canada Ltd. and the Co-operators General Insurance Co. IBM will introduce a cost-per-user model and manage the in-house email of Co-operators.

Pay-as-you-go is certainly one compelling way for a company to obtain information technology that might not otherwise be affordable. It’s an approach that may have particular appeal for smaller businesses, since pay-as-you-go eliminates large outlays for new equipment purchases and minimizes the risk of investing in technology. A company might not want to wrestle the notion of whether it is a better strategic bet to buy into Cisco or Nortel’s vision of next-generation telephony, for example, but with pay-as-you-go, who cares? Let the service provider worry about it.

What’s particularly impressive about the St. Mike’s hospital example of pay-as-you-go computing is what was accomplished through the resourcefulness and creativity of the customer. The hospital effectively solved its own IT problem through a pay-as-you-go model that its CIO defined. In last week’s column I challenged technology companies to offer smaller customers more than a basic rehash of products and services developed for larger clients, but that said, vendors don’t always have the answers. Sometimes it takes smart customers and an open-minded IT company to figure out the best solution.

St. Michael’s Hospital demonstrated that there’s a whole lot that a customer can do to help cure what ails them.

— This article appeared in The Globe and Mail on February 10, 2005.

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