A new trend is transforming the way information technology is delivered, letting companies pay a monthly fee for outsourced IT services based on their level of consumption.

The Utility Company, a new Ottawa IT services firm, asserts that this model of delivering IT services as a "utility" is the most effective way for companies to outsource services. The firm charges companies a fixed monthly fee for IT services, determined by the number of users they have.

"We look at the market very differently from the traditional IT service approach," said Mark Scott, president of the company. "We're looking at rolling up hardware, software and services into a utility service and providing it as companies need it."

Workshift.com, another local IT services company, has offered a similar model of service for a few years, alongside other delivery models. President Chris Ellsay said the utility model — what he calls "managed services" — will likely take over the industry in the next five years.

"That model has been very effective," he said. "It's going to become the norm."

Managed services are most popular among small and medium sized businesses — ones with less than 100 or so employees. The companies offering these services say they can reduce the amount clients spend on IT services.

"Most small and medium businesses are overspending on IT services," said Mr. Scott.

He added that most companies only use about 15 per cent of the technology they pay for. To avoid overspending, companies should only invest in services they need, he said. Reassessing the technology needs of a company and allowing them to pay for services on a consumption basis can reduce the amount they spend.

"We help them utilize technology better," Mr. Scott said.

Mr. Ellsay agreed that managed services are more affordable. "This definitely can save a company a fair amount," he said.

Ottawa semiconductor company Elliptic outsources some of its IT services using a fixed user-based fee structure. Chief technology officer Mike Borza said the cost is very reasonable.

"It doesn't cost us a lot to administer those services in that way," he said. "We get good value out of them."

The fixed-fee structure also makes IT costs more predictable for companies.

"It takes the guessing game out of what your budget will be," Mr. Ellsay said.

Mr. Borza agreed. "We pay a certain amount every month. It's very predictable."

But Mr. Ellsay cautioned that this service model is not for everyone. "It's not a one-size-fits-all. Companies really have to consider all the costs in considering whether this is right for them."

The managed service model at Workshift.com emphasizes ongoing IT maintenance, solving problems as they arise. It offers support services whenever they are needed rather than the scheduled visit each week that traditional IT services provide, Mr. Ellsay said. It also allows more services to be offered remotely.

"We do ongoing maintenance as it's needed," he said. "It can be done remotely and automatically."

About 90 per cent of The Utility Company's services are delivered remotely, Mr. Scott said. The other 10 per cent is onsite service provided by the company's franchises — what it calls "Utility Service Providers." The company has four franchises so far with six more expected to come on board this month. It hopes to have 100 franchises by the end of 2007.

Onsite visits are an important element of managed services, Mr. Ellsay said. Effective IT services require a thorough understanding of a company's technology needs, which means spending time at the company and knowing its goals and business strategies.

Although Workshift.com adopted the managed service model about six years ago, it has evolved considerably since then.

"It's an exciting new model," Mr. Ellsay said. "It's ongoing."

He said managed services will continue to grow as companies increasingly turn to outsourced IT services.

"IT is becoming more and more specialized," Ellsay said, adding that the complexity makes it difficult for a single internal staff member to oversee a company's IT services.

Mr. Scott also predicts that more companies will embrace the managed services model. "The industry is starting to move towards a utility-like model."

By Megan Harman

Special to the Ottawa Business Journal