The lingo, complexity and sheer scale of on-demand computing often seem so vast as to be paralysing. But when you peel away the marketing spin and the many terms used to describe this phenomenon, you can reduce it to two phrases that everybody understands: "waste not, want not" and "pay as you go".

While the concept may be simple, the execution isn't. Full on-demand computing at the enterprise level requires degrees of reporting and management unheard of at most companies. It also entails rethinking the organisational structure of IT - focusing on business needs rather than on technical specialties.

In an effort to hack through the definition thicket, here's a simple way to think of on-demand computing: It's when computing resources are made available to users on an as-needed, pay-per-use basis. These dynamically allocated resources may be maintained within the enterprise itself, or they may be procured through a service provider.

Many in IT use the term utility computing as a synonym for on-demand computing, but utility implies near-total use of outsourcing, application service providers and managed services. For some business executives, the idea of turning on a tap and getting all the IT you need - along with an easy-to-read bill at the end of the month - is appealing. But it will be a long time before this is the reality in any sizable enterprise. Existing investments in infrastructure, as well as the desire to use IT as a competitive differentiator in selected strategic areas, make the 100 per cent-utility model unfeasible for most.

However you define it, on-demand is in demand. In a recent Computerworld online survey, 32 per cent of the 765 respondents said they are pursuing, piloting or have deployed on-demand computing, while 30 per cent are investigating it. Economics is the primary driver. "Most companies have optimised their IT environment and are looking for ways to find additional gains," says Jo-An Skowronek, vice president of business development at Affiliated Computer Services, a Dallas outsourcer.

Emphasis on cutting costs
In 2003, when health insurer Cigna began talking to IBM about on-demand, cost reduction was the principal motivator, according to Cigna VP Ben Flock. Cigna was using more than 3,000 servers for myriad applications, including self-service portals used by many of its 10 million customers. "We'd been developing apps on the fly, so we had a lot of legacy [systems]," Flock says.

Initially, Cigna's goal was simply to move all applications to a single version of IBM's WebSphere "to drive down operating expenses," he says. But when IBM said Cigna was a candidate for on-demand, Flock agreed.

Other on-demand pioneers also turned to the computing model to save money. Two years ago, when Exxon Mobil made its Mobil Travel Guide unit an autonomous division, Mobile Travel Guide CIO Paul Mercurio went the service-provider route, opting for IBM's On Demand Linux Virtual Services to host and manage the division's e-business applications. "Despite the Exxon Mobil name, we were acting as a start-up. We knew we would grow rapidly, and our business was seasonal," he says.

Every major enterprise software vendor offers on-demand in some form, depending on that vendor's history and strengths. Some focus on management and reporting tools, others on virtualisation and still others on the services model.

But a successful on-demand strategy demands organisational change as well. At Georgia-Pacific, CIO James Dallas is trying to retool the IT mind-set before introducing on-demand products and services. His goal is to help his 1,200 IT employees think more like business people before the Atlanta-based conglomerate shifts to on-demand. "We need to run IT like a business, but what does that really mean?" asks Dallas. "To someone who's been in IT all his career, that's an empty phrase."

To make the phrase meaningful, Georgia-Pacific is putting all its IT employees through financial-skills workshops and other fiscal training. Dallas has also tasked a communications specialist to constantly communicate the changes the new model will bring, and Georgia-Pacific has formed centres of excellence around three key areas -- business intelligence, server support and e-commerce -- in which on-demand will be put to the test.

"We're still early in the process," says Dallas, "but we think it's important to adopt on-demand as a business model, then put the technology in place."

Alignment is everything
If there's an under-explored aspect of on-demand, it's that the model can't succeed in one of its primary goals -- aligning IT use with business needs -- unless coupled with a business process methodology. Some of the methodologies designed to do just that are IT Information Library (ITIL), balanced scorecard, business service management and portfolio management.

These disciplines force organisations to begin at square one, which may prove frustrating for IT managers expecting quick benefits. Even basic nomenclature must be addressed; if storage capacity or administrator aren't defined exactly the same way across all of an enterprise's data centres and IT groups, it will be impossible to pool and manage these resources. According to Chris Buss, HP's virtualisation manager, this lesson was learned by Philips Semiconductors when the manufacturer implemented the Utility Data Center, HP's flavour of on-demand.

"Philips quickly found out they needed standard nomenclature in place," Buss says. "So with help from us, they used ITIL to create a set of universal definitions they called the Soldier's Handbook." Buss says Philips has since achieved 45 per cent cost reductions in its data centre operations.

Getting Serious
Early users notwithstanding, on-demand has until recently been shrouded in unrealistic expectations and conflicting definitions. Fortunately, the peak hype has passed, replaced by sober assessment of the model's limitations. "There's a number of business objectives on-demand can help solve," says Bill Mooz, Sun's senior director of utility computing. But it won't magically slash IT expenses on its own, he adds. "If your cost is too high, it may be because you're using the wrong architecture or operational model," he says. "You need to address the root cause before you start worrying about [on-demand] as a financial model."

What needs to be done to push on-demand forward? Analysts say apples-to-apples pricing comparisons would be a major step. "All the big systems vendors have noted this confluence of [distributed enterprise computing] trends and have responded with a blend of services and highly distributed software," says IDC analyst Dan Kusnetzky. "But they've all spun it their own way; there are now a dozen buzzwords" for on-demand. Kusnetzky says on-demand will find greater enterprise acceptance when terminology and pricing models grow more standardized.

Flock says Cigna's move to an on-demand model for its IBM WebSphere operations has reduced costs significantly. Moreover, he adds, the maturation of the discipline promises to bring about the hoped-for tie-in between business needs and IT resource allocation.

"The initial drivers for on-demand were reduced operating expenses," Flock says. "But we're seeing other benefits now, like improved security and performance guarantees. This looks like the real thing."