NMH Fills the Void Created by the Demise of NIH

Not much more than ten years ago corporate IT departments were resisting the adoption of packaged applications. They argued that the applications couldn"t possibly provide the same functionality as the ones they had developed internally. They argued that the applications were unproven and therefore too risky to trust mission critical processes to. They argued that the vendors were too new and might not be around to support the products in the future. And, of course, there were elements of truth to all of their arguments. But the real cause of their anxiety was the NIH (Not Invented Here) syndrome. They were experiencing anxiety about losing control.

Flash forward to today. Packaged applications are standard at most corporations. Few CIOs or IT managers would argue for developing applications in-house. If anything, corporate IT departments are putting pressure on independent-minded divisions and remote plants to get in line and adopt the corporate standard for packaged applications. And, ironically, they are meeting their own pockets of the NIH syndrome.

Now IT departments are faced with a new challenge. Advances in web-based technologies - both hardware and software - have opened the door to providing business users with functionality from outside the four walls of the enterprise. The first attempts by third parties to deliver application functionality from outside have floundered (see discussion of ASPs in last week"s article) - mainly because they got the business model wrong. However, ASPs did open the door and provided lessons for the next wave - utility computing.

The arguments against utility computing have a familiar ring. The functionality falls short of requirements. The technology is unproven. The vendors are too new. And then there are the new arguments. There are integration issues. There are security concerns. But it all boils down to one thing - concern about losing control. The new anxiety is best described as the NHM (Not Managed Here) syndrome. NHM is picking up where NIH left off.

Established Technology Vendors Are Also a Barrier

The biggest potential losers in a utility computing scenario are the established application vendors, followed by the established hardware vendors. Imagine a scenario whereby users subscribe to IT-based functionality as needed. In this scenario users don"t pay a software license fee, don"t pay software maintenance fees, and don"t buy any application servers. All they pay is a monthly subscription fee based on specified functionality and the number of users. And they can cancel their subscription at any time. An established technology vendor with a vested interest in the status quo would be crazy not to fight the trend towards utility computing.

Large, diversified technology vendors such as IBM and HP see the writing on the wall and, at least from a marketing perspective, are trying to establish themselves as leaders in the utility, or on-demand, computing space. At a strategic level they know they have to get there but there are few signs of progress at the execution level. Salespeople tend to sell products and services they know and which have a predictable return. Utility computing is too immature to have those characteristics.

Some established application vendors made forays into the ASP world - but few stuck with it. The few that still offer an ASP option, such as Datastream Systems, are not actively pushing the option. Early attempts to do so were met by user resistance. And, like any public company, they had to face investor concerns about the near term impact on revenue of going from a license model to a subscription model.

Business Leaders Will Force the Issue

Like the switch to package applications from internally developed applications, the switch from buying applications to subscribing to functionality will be driven by business leaders. Most business leaders do not want to be in the IT business. They typically feel that IT "costs too much and delivers too little.” However, they know they need the functionality that IT delivers.

Most business leaders, particularly in large companies, are conservative. They will not risk their career on an untested and unproven approach. First adopters will be small to mid-size companies looking to get an edge on their larger competitors. Many of them will be private companies with strong, entrepreneurial leadership and an appetite for taking on - calculated - risk.

The challenge for utility computing providers will be to convince business users they are indeed getting a better deal. Easier said than done because most companies do not have a good understanding of what it costs them today to deliver specific IT-based functionality to each user. Utility computing cost savings will need to be order of magnitude greater than those achieved by the ASP and outsourcing models - both of which have struggled with the pricing issues.

Think Big, Start Small

Utility computing adoption will come from thinking big and starting small. Visionaries ready to subscribe to all of their IT-based functionality today are faced with the reality that there are still significant barriers to adoption. While there may be no fundamental technological barriers, most existing applications are not designed from the ground up for use in a utility computing environment.

The approach most likely to achieve results then is to work with service providers and software companies such as salesforce.com and Datastream which have an applications architecture designed for utility computing and have experience delivering the functionality. Don"t try to attack application areas already firmly established but, instead, go after those areas yet to be fully or satisfactorily addressed. Also consider starting with applications shared with trading partners which, by their very nature, it makes sense to have sitting on a third party server outside the firewall.

Eventually, as the benefits of the utility computing model become apparent, it will spread across the organization. At the same, as demand increase, a broader array of utility computing service offerings will appear. And ten years from now we will finally declare victory over the NMH syndrome and bury it with its predecessor NIH.

In the next article we will highlight some utility computing leaders and what they have done to overcome the barriers to adoption.

Leif Eriksen is founder and principal at Industry Insights, an independent consultancy. He has over 20 years experience in business strategy and technology and can be contacted on leif@industryinsights.net.