Over the last three years, Fluor Corp. (FLR ) has wrung waste from its information-technology budget like water from a wet sponge. The enginering and construction giant based in Aliso Viejo, Calif., has cut costs by a total of $85 million, thanks to its embrace of cutting-edge technology, Chief Information Officer Ray Barnard says.
The $9 billion company is reaping the dividends of its decision to bet on a new trend called utility computing. Instead of buying its own hardware and software, it purchases just what it needs and no more from suppliers such as IBM (IBM ) and Cisco (CSCO ).
While such outsourcing arrangements have been around since the '80s, utility computing is something new. Fluor has a contract with minimal fixed costs. It pays for what it needs the way it pays for water, electricity, gas, and other utilities. About 25% of its IT costs are fixed, down from 95% a few years ago. "We believe this is the way of the future," Barnard said during a panel discussion at CeBIT, the big European tech trade show that has been exported to New York.
Utility computing is starting to take off. The market is expected to triple over the next three years, to $25 billion, up from $8.6 billion in 2003, according to Gartner Group. Market penetration will rise to 30% of companies, up from 15% now, the research and consulting outfit says.
Saving money isn't the only benefit of utility computing. It also lays a foundation for more efficient business operations. Fluor recently established a data center in Chile to serve pharmaceutical and oil-refining clients. Suppliers IBM and Cisco set up the center in 70 hours, a process that would have taken three months if Fluor had bought all the equipment and done the installation itself. That sort of speed gives Fluor an edge in the market, improving its ability to respond to opportunities.
The move to utility computing started in the financial sector. Barnard says Fluor was among the earliest adopters outside that area. About 60% of its IT department now runs on the utility model, and the transition will be complete by the end of next year, he says.
Barnard is already looking to the next step. Within 18 months tech outfits will start selling something that IBM refers to as grid computing. That will allow big companies such as Fluor to share, select, and aggregate dispersed clusters of computing resources, boosting efficiency and lowering costs even more.
By Steve Rosenbush in New York