May 03, 2001, 1:11 PM — New capacity-on-demand, or COD, procurement models aimed at making hardware upgrades easier could instead cause major budget and process disruptions if they're not implemented properly, warns an upcoming report from Meta Group Inc.
Options for capacity upgrades on demand are meant to give companies a way to manage unpredictable growth by letting them buy machines equipped with dormant capacity that can be activated as needed.
A company might choose to buy an eight-processor system but initially use -- and pay for -- only four processors. But when it needs to expand beyond those four, the capacity is already in place.
Among the biggest problems with this model is the potential for companies to use up capacity more quickly and more haphazardly than before, resulting in steep increases in associated software costs, according to Stamford, Conn.-based Meta Group's report.
"COD is the hotel minibar of the data center . . . When you get hungry, you raid it," said Dan Kaberon, Parallel Sysplex manager at Hewitt Associates LLC, a human resources outsourcer in Lincolnshire, Ill.
With data center software costing much more than hardware these days, it becomes particularly important to pay close attention to capacity upgrades, he said.
"Normally, hardware upgrades require seven studies, 19 levels of approval and several months to accomplish. With COD, you just break the glass and reach in," Kaberon said.
Such concerns come at a time when an increasing number of server companies have started offering capacity-on-demand variations. Two weeks ago Unisys Corp. in Blue Bell, Pa., joined a growing list of vendors that includes IBM, Sun Microsystems Inc. and Hewlett-Packard Co. in offering users capacity on demand. Meta Group estimated that 80% of the 2,000 largest companies in the world will use a COD model in one form or another by 2006.
Companies that are thinking of signing up for such options need to first ensure that they have the right capacity-planning, change- management and asset-management processes in place, said Rob Schafer, author of the Meta report. "Instead of having to do less capacity planning, the reality is you have to do more," he said. "Or else you'd better be prepared for some really ugly surprises."
"In theory, it is a really great idea," said David Ochroch, an analyst at Reiner Associates Inc., a procurement consultaancy in San Rafael, Calif.
But strict controls need to be exercised on how the dormant capacity is utilized, who gets to turn it on and who gets to sign off on the decision to add capacity in emergencies, he said.
With COD, there can be situations where operators might have the ability to instantly turn on extra capacity without the due process and time involved in traditional procurement practices, Schafer said.
As a result, companies need to have well-crafted and tightly controlled software contracts that have negotiated upgrade clauses that take COD into account, Ochroch said.
Since vendors have different ways of implementing and pricing COD, it's also vital that users pay special attention to the terms and conditions under which the option is offered, said John Phelps, an analyst at Stamford, Conn.-based Gartner Inc.
"Some might charge you more of a premium upfront; some may choose to charge you more when you activate the extra capacity. It all depends on what your needs are," he said.
