- Sep 19, 2003
Chargeback Utility Model
A utility model is used when a customer purchases a resource from a supplier on a utilization basis, such as gas and electricity. If a business has already purchased IT resources on a utilization basis, the method applied to the business unit purchasing the resource is called chargeback. The chargeback method allows the IT supply function to recover costs, hence paying for the resource.
FIGURE 1 illustrates where the chargeback method resides in a utility model:
FIGURE 1 Chargeback Utility Model
FIGURE 1 makes it clear that a supply chain for resource exists. For example, in the power supply industry, the grid bandwidth must be able to meet demand; correspondingly, in an IT utility model supply chain, the available IT resources must be able to meet demand. This means that system resources that are deployed as available, but currently unused, have a necessary and valuable role to play in the supply chain. If IT resources are deployed to meet short term demand fluctuations, they have value to the consumer and need to be priced and billed.
System vendors operate a manufacturing 'products offered' business model, and in order to offer a true utility price to a consumer, someone in the supply chain needs to take risk regarding demand and price. It is the carrying of risk that earns much of the reward in implementing a utility model solution; and while some system vendors including Sun, are agreeing to carry some of this risk, it is open to question whether companies wish to lose the opportunity to earn the returns on carrying the risk. It is clear that higher value service providers, including internal IT providers, will wish to carry this risk as a way of broadening their revenue earning capability.