On this sunny March afternoon bankers and investment dealers in shiny suits are lined up at the corner of King and Bay in Toronto to buy hot-dogs from a street vendor. No fancy lunches at La Maquette or Jump for these boys. It’s a sure sign we are into the third year of a nasty recession with no

sign of a recovery in sight. Equity markets have been in a free fall so long no one on Bay Street dares even to whisper about the go-go days of the late 1990s.

Today no one is rushing to buy stocks — especially on the retail end of things. Similarly, no one is interested in taking a bath by selling equities for a fraction of what they were purchased. It’s a Catch-22 situation, but any way you look at it, it spells trouble for the street where trading volumes have flat lined.

Toronto-based BMO Nesbitt Burns — a leading full-service investment dealer with billions of dollars in assets under administration, and operations in North America, Europe and Asia — has not escaped the ravages of this latest economic downturn. In order to make the best of a bad situation, BMO Nesbitt Burns is becoming a lean, mean, fighting machine.

“”I’m under a lot of pressure by management to do more with less,”” says Mark Saunders, senior vice-president and CIO of BMO Nesbitt Burns, a division of BMO Financial Group.

“”I like to think what we did was an easy way of accomplishing that.””

Saunders — a forty-something native of Norfolk, England who enjoys sailing on Lake Ontario — is referring to a deal he signed in July 2002 with Hewlett-Packard (Canada) Co. that will save his company $3.3 million over three years, and improve the performance of key IT applications by as much as 100 per cent.

How is that possible? Since the beginning of the year, BMO Nesbitt Burns has been paying for the computing power it uses to run mission-critical systems, including equity trading and portfolio management, according to a utility-pricing model emerging as the big new thing in technology delivery. Just as you pay your power and telephone companies only for the electricity you use, and the long-distance calls you make, with utility pricing you only pay for how much IT service you consume.

Central processing unit (CPU) cycles, storage and bandwidth are the utilities that lend themselves most readily to this business model. But there is no reason other IT services, including financial and customer-service applications, could not in future be offered to customers on a pay-as-you-go basis.

Leading vendors including HP, IBM and Sun Microsystems have embraced utility computing. An atmosphere of suspicion — engendered in part by the hard time CIOs have in making multi-million-dollar IT investments live up to their billing — has put pressure on vendors to ensure clients get as much bang for their IT bucks as possible.

“”Utility pricing is compelling from a lot of perspectives,”” says research analyst Dan McLean with Toronto-based IDC Canada. “”Once you begin viewing computing and networking capability as plumbing, you soon realize you don’t need to build your own infrastructure.””

Another advantage of utility pricing, is that it is narrower than outsourcing. “”Outsourcing involves handing off staff and equipment,”” says McLean. “”But some companies don’t want to outsource their IS staff just to get a better network.””

Before signing its utility-pricing deal with HP Canada, BMO Nesbitt Burns and its parent BMO Financial Group, looked at outsourcing its application hosting. “”We concluded there was not enough economic value,”” says Saunders from his sixth floor office on Bay Street “”Outsourcing did not offer enough financial lift.””

By comparison, utility pricing seems to be ideally suited for BMO Nesbitt Burns. “”We’re not a widget factory,”” says Saunders, whose job is to make sure his company’s 3,000 knowledge workers, including traders and investment advisors, have reliable access to the applications they need. “”Our volume is dictated by activity in the marketplace, and that is always unpredictable.””

In the past, BMO Nesbitt Burns had to maintain headroom that was three to four times its average daily trading volume to accommodate unexpected market fluctuations. On a typical day this resulted in a huge amount of underused capacity the company had to pay for.

Implementation of the utility-pricing deal at BMO Nesbitt Burns included a reorganization of the company’s server infrastructure. Prior to the deal, BMO Nesbitt Burns had 21 servers scattered across the country. Today the company operates three HP Superdomes — which are the 600-pound gorillas of the server world — at its Toronto headquarters, and a fourth at its disaster recovery centre in Scarborough, Ont.

With utility pricing HP continues to own the Superdomes, and Saunders only pays for the computing power he uses on any given day. Plus, by centralizing his servers, Saunders has been able to increase the speed of applications that perform a slew of functions, from updating client holdings to generating cash and margin reports by 50 to 100 per cent. Since many of these applications run at night if anything goes wrong Saunders now has more time to fix it.

“”There is a real need for a flexible IT infrastructure that can adapt quickly to changing business needs, and one that is cost effective,”” says Joanne Dodsworth, a marketing manager in the Toronto office of HP Financial Services.

But if utility pricing is such a no-brainer, why are people not rushing to jump on the utility bandwagon? The fact is since HP introduced its utility model in the Canadian

market in July 2001, it has signed just four customers, including BMO Nesbitt Burns. “”Many customers have shown interest, but are afraid of trying out something brand new,”” says Dodsworth.

Says analyst McLean with IDC Canada, “”One thing companies have to ask themselves is whether a utility model will support new processes and applications as they are introduced.””

Greg Gulyas, vice-president of sales and marketing in the Toronto office of IBM Global Services, says on-demand services will become as mainstream as outsourcing. Indeed IBM is bank-rolling its global on-demand initiative, whose clients include Canada Life, with US$10 billion. “”Under the utility management model we monitor service levels and security, while the client realizes savings of five to 50 per cent,””  says Gulyas.

At BMO Nesbitt Burns the $3.3 million represents a 25 per cent saving on the $13 million it would have spent to replace existing servers. So what happens in three years when the contract with HP runs out? “”We’ll have to review our options again,”” says Saunders. In the meantime, Saunders will have one less thing to worry about when he is sailing on Lake Ontario.

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