Business Strategy
Business Strategy
Now that you are armed with an overview of Web services, a discussion of the market trends, key players, and some of the technical concepts, we'll discuss how to apply this emerging technology within the business. We'll start with some examples of industry scenarios, benefits and challenges, and case studies, and then move on to discuss ways to apply Web services within your own business.
Industry Scenarios for Web Services
The following examples are some industry scenarios that demonstrate how Web services can be applied as part of a business strategy. When considering your business strategy with Web services, the main objective is to think about which parts of your business can be represented and captured as discrete units of work that have value either to employees, customers, or business partners. If you can make a business function into a unit of work that is self-contained, which performs a useful task, and which can be codified via software, then you have the correct elements for exposing this as a Web service. The key ingredients are value, simplicity, and reuse.
Sales tax calculation
One of the simplest forms of Web service is a simple calculation such as a sales tax calculation. This is a prime candidate for Web services since it is simple, is something that companies are willing to outsource, and is subject to constant change due to great variety in the tax laws. In fact, there are over 7,000 different sales and use tax jurisdictions in the United States. For example, Hewlett-Packard and Taxware have worked together to provide a Web services solution for the Streamlined Sales Tax Project (SSTP). The solution calculates sales and use taxes on behalf of merchants and then sends the seller's funds and their filing information to the proper tax authorities. It therefore provides two distinct benefits: the tax calculation itself and the remittance of funds.
Travel services customization
The travel industry provides another example of the application of Web services. A travel company serving travel agents and large corporate customers can offer a differentiated service by automatically assembling travel provider services, such as airlines, hotels, and rental cars, for corporate customers based upon their travel policies and unique preferences. For example, consider the solution developed by Bowstreet for a leading travel company. The solution was able to bridge various technical systems and business processes across partners and also to be responsive to change in real time to both partner-initiated business rules and customer-initiated business rules.
Automotive aftermarket portal
Within the automotive aftermarket industry, parts manufacturers often deal with large numbers of "jobbers" (distributors) and body shops within their distribution chain. This can lead to complex requirements for Web portals that include high degrees of personalization for branding purposes and for the various user constituencies. In this scenario, Web services can be applied in order to simplify application development and to provide the high degree of personalization required due to the various "jobber" profiles and the types of parts that they typically purchase. An example is the solution developed by Bowstreet for a multibillion dollar automotive parts manufacturer which included multidimensional profiling based upon four different brands and eleven types of user access roles.
Fitness Portal
Within the fitness industry, a company can build a portal to offer registered members access to training schedules, workout plans, and progress reporting tools. The benefit of developing this type of Web portal via Web services is that the company can partner with other vendors who provide portions of the overall solution. An example is the fitness portal developed by Life Time Fitness, a health and fitness company, which uses a scheduling tool from Xtime, a software vendor in the scheduling software and services automation business.
Government Integration
Web services can be applied to help government agencies collaborate with one another and to exchange information. This can help to reduce silos between departments and to avoid duplication of effort. The integration of agency systems can help to save millions of dollars in terms of IT spending. An example is the Executive Office of Health and Human Services in the commonwealth of Massachusetts. It applied Web services running on the Microsoft .NET framework to consolidate client information running on legacy databases and back-end applications across multiple agencies.
Creating a Customer Web Portal Using Web Services TechnologiesDuPont Performance Coatings www.performancecoatings.dupont.com Executive Summary DuPont Performance Coatings (DPC), a strategic business unit of DuPont, is the largest automotive coatings company in the world, with more than 12,000 employees in over 35 countries around the world. The company deployed a Web services solution from Bowstreet in a customer Web portal scenario for 4,000 paint distributors and 60,000 body shops. Business benefits included reduced costs, increased customer satisfaction and loyalty, and competitive advantage.
Challenge DuPont Performance Coatings (DPC) wanted to move its business online in order to better serve its customers and to extract cost savings and internal efficiencies. According to Catherine Marchand, e-Business Strategy Manager for DPC, the long-term business objectives were to use the online presence to achieve competitive advantage and to deliver new forms of value and potentially new business models for their user constituencies. The goal was to make it easier for customers to do business with DuPont Performance Coatings. Additionally, they wanted to help customers succeed since many of them were small businesses with varying levels of technical readiness. Solution After careful planning and discussions with customers, DuPont Performance Coatings decided to focus its Web portal deployment on its automotive refinishing customers, namely, 4,000 paint distributors and 60,000 body shops starting with the United States. After evaluating numerous portal and Web services offerings from technology providers, DPC selected the Bowstreet Business Web Factory due to its ability for mass customization. This was critical since DPC wanted to implement a solution that could serve as a global foundation for all of its business units and brands together with the requirements for unique portal views for its end users. They also needed a solution that could be managed from a business standpoint rather than via custom coding, so flexibility and adaptability of business rules were also high requirements. Finally, another requirement was that the technology provider had a long life expectancy. They wanted a leading edge solution that would still be around in the future. Benefits The business benefits from the deployment have included significant time and cost savings. Online paint ordering is removing some of the workload from DPC customer service agents. Online marketing materials are reducing costs for printing, managing, and distributing paper. Online training registration is saving the company's distributors from clerical work. Online Materials Safety Data Sheets are providing customers with instant access to the latest product information and saving DPC from having to fax to these documents to the body shops. Some of the intangible benefits realized have included stronger customer relationships and increased loyalty. While a similar Web portal could have been constructed using more traditional software platforms, the leverage of a Web services-enabled platform such as the Business Web Factory from Bowstreet has provided increased flexibility in terms of mass customization, increased business level management of the platform application logic, and reduced development costs compared with traditional software development platforms. The DPC Web portal site can be viewed at www.performance-coatings.dupont.com. DuPont Performance Coatings is currently evaluating the site functionality and adoption as part of an overall assessment phase. The company has found that it is serving well as a tool that not only provides service to customers but also helps determine what customers want in the future. Putting a solution in the customers' hands and gaining feedback are far better than gaining customer requirements from discussions with no concrete solution in place. Some of the lessons learned, according to Marchand, include the importance of looking at the external value delivered to customers, aligning e-business programs with overall business strategy, and performing considerable market research and competitive research up front prior to deployment. Looking at the problem space from an outside-in perspective, and with a no-hurry pressure in terms of rush to deployment, helped DPC ensure that the Web portal met the needs of customers and provided the highest levels of internal efficiencies. The company found that sales and customer service staff were able to provide higher value contact and communications with their customers. One of the main take-aways from this case study is that solutions can be deployed with early adopter technologies such as Web services with a mainstream and conservative approach to planning and implementation. |
Benefits of Web Services
The benefits of Web services can be divided into both business and technical benefits, as you might expect. The following is a summary of the typical business benefits that may be obtained from Web services:
New sources of revenue
Web services allow new sources of revenue to be envisioned as business services are packaged as Web services and offered to customers. These Web services can be fine-grained or coarse-grained as required. The value proposition to the customer is that integration with your business services is made easier and more flexible. It can lessen the requirements for developers from both sides to collaborate on integration standards since Web services help remove the barriers associated with different programming languages and different operating systems. Customers can subscribe to your services and therefore use them with less expenditure on application integration efforts between companies and with more flexibility in how they may interact with your services. In particular, you may be able to offer more advanced personalization and customization based upon your customers' profiles and preferences.
Competitive advantage
Web services can provide competitive advantage by enabling a company to provide services that its competitors cannot match using traditional e-business approaches. This includes the ability to combine Web services from other partners to form aggregate forms of Web services which bring customers greater ease of use and higher levels of service. The competitive advantage comes both from the ability to integrate applications faster and more cost-effectively, and from the ability to create complex Web services aggregations that combine services from multiple partners to create new virtual business solutions and deeper levels of integration across corporate boundaries.
Business agility
Web services can promote business agility by allowing business services to be constructed on the fly. Web services can be mass customized based upon changes to partner and customer profiles and preferences. They can also be dynamically assembled with different partner services or different enterprise services as required for each business transaction. In this manner, the Web services are able to adapt to real-time business requirements and conditions. For example, if a required part is out of stock with a particular supplier, the application can dynamically switch to place an order with another supplier who has the part in stock. It is important to note that while different partners can be dynamically assembled into the electronic value chain on a transaction by transaction basis, each of these partners will typically need to be preapproved as a trading partner up front. This way dynamic business relationships can be orchestrated between known, trusted partners instead of unknown entities.
Virtual enterprise
Web services represent a way for a business to move toward the virtual enterprise paradigm by allowing it to dynamically hook into other third-party services on an as needed basis and to expose its own Web services for other organizations to consume. As an initial step, deployment of Web services internally within the enterprise can help prepare for future outward-facing initiatives. If business functions are packed into Web services, they can be offered to various business units avoiding any duplication of effort and can even be opened up to paying customers. An example might be an order status Web service. This service could be offered to various internal departments for sales and support functions and eventually to customers for self-service access to order status over a variety of communication channels such as pagers, personal digital assistants, and cell phones. Another example of an internal deployment would be as part of an IT shared services organization where certain business functions or application services are made available to numerous operating companies.
Increased customer satisfaction
By using Web services to aggregate services from various providers in an end-to-end solution for customers, businesses can increase customer satisfaction and loyalty and provide a differentiated level of service. They can also earn referral fees by automatically integrating their business partners into their transactions and referring business their way. An example might be an electronic commerce site that provides automated links to service providers for credit check, logistics, and insurance services.
Increased productivity and reduced costs
A final business benefit of moving to Web services for application development and application integration is that the technology can speed development times and provide applications that deal with greater programmatic complexity and variety. In this way, developer productivity is increased and there is a reduction in overall IT costs in building applications using Web services frameworks. Since such a large portion of the business capital and ongoing expenditure is devoted to information technology, this is a considerable business benefit that cannot be ignored.
Challenges for Web Services
Like benefits, challenges for Web services can also be divided into both business and technical areas. The following is a summary of the typical business challenges that currently surround the Web services arena.
Strategy
One of the main challenges to Web services deployment is that considerable strategy is required prior to any type of implementation. The business needs to determine which business processes to codify into software processes and expose as Web services. In addition, the business must determine which business functions are to be internally developed and maintained as a core competency and which should be outsourced from a known and trusted third party. Finally, business decision makers need to plan which business partners will be included within this virtual business Web and thus permitted to engage in dynamic Web services interactions. Careful planning of business strategy and appropriate business processes for deployment via Web services will be a major factor in determining success. Once developers have learned the basics around Web services standards and platforms, the technical integration challenges will be secondary. Some gaps still exist, however, in the end-to-end technical solutions that are available and developers may need to craft custom approaches to fill in some of these gaps around Web services development, deployment, and ongoing operations. So in addition to strategy formulation, considerable time and effort still need to be expended upon actual implementation and business expectations need to be set accordingly.
Trust
For Web services to take off in mass adoption, there needs to be some form of trust mechanism in place between dynamically discovered business partners. One of the benefits of Web services is the ability for business partners to discover each others' services dynamically for just-in-time, customized business transactions. The issue with moving to these dynamically assembled value chains with new partners is that even if it is technically possible, there are still a lot of business trust issues that need to be dealt with. For example, based upon the type of service the partner is offering, the subscribing business may need to be assured that the partner is competent to do the job within the required service levels. Historically, this has required due diligence, including background checks, credit reports, customer references, and finally, contractual agreements between parties. It basically requires a lot of manual activities to be conducted before any automated transactions can even start to occur between partners. It is likely that two scenarios will exist for business-to-business Web services deployment. The first will be dynamic Web services between prearranged partners. The second will be dynamic Web services between unknown partners. It is likely that an 80 20 rule will exist with 80 percent of the transaction scenarios occurring between known, prearranged business partners. The remaining 20 percent of transaction scenarios will eventually occur between unknown, dynamically discovered partners but will be characterized by low-value-added, commoditized services where trust is less important.
Security
Prior to deploying Web services, businesses will need to develope a clear picture of which functions to expose publicly and which to make private. For those services exposed privately, the business will need to carefully map out which business partners gain access to which business processes and the levels of access granted within each business process. With Web services opening up a huge realm of possibilities for exposing business functions to partners, the complexity of security requirements in terms of authentication and access control will become greater. The business world is increasingly opening up its systems for others to view and utilize, which creates additional security risks and places a larger requirement on careful design and ongoing monitoring of business activities. Since Web services are primarily a machine-to-machine interaction, it will be critical to set up security controls and have mechanisms in place for intrusion detection and for auditing and reporting.
Critical Mass
Web services also need to reach critical mass in terms of the number of business adopters in order to extract the full value offered by the technology. The more business partners that engage in Web services interactions, the greater the opportunity for true network computing, where every business, every application, every device, and every person is a connected node on the network that acts as a provider and consumer of Web services. This critical mass will also enable more dynamic forms of business-to-business interaction as more partners come online with the technology. Just as the World Wide Web enables a critical mass of businesses to engage in human-driven information access and electronic commerce transactions, so Web services may eventually enable a critical mass of machine-to-machine, business-to-business transactions running over the same set of open industry standards and protocols. Of course, business-to-business transactions have been occurring since the mid-70s via electronic data interchange, but Web services will enable these transactions to become more dynamic, more complex, and more real-time with a far greater return on investment.
Strategy Considerations
Now that we've seen the benefits and challenges of Web services and the various industry scenarios and case studies for how they can be applied, it's time to consider strategy formulation within your own business. Let's explore some guidelines for developing your business strategy around Web services and how to estimate results.
The major business strategy considerations for Web services are which initiatives to target, how to prioritize these targets, how to execute and how to measure results. When determining which initiatives to target, one should map current business initiatives against their risk factor and their suitability for implementation via Web services. Initial projects should have a low business risk factor, should be simple transactions that are easy to implement as Web services, and should have immediate benefits. Low-risk factor projects can be those which are deployed internally or which are deployed to a small group of friendly business partners who are conducting similar initiatives via emerging technology and want to learn similar lessons by working with others as service consumers or service providers.
The business decision makers should look at Web services from several angles. Firstly, they should look for ways to ease the effort surrounding application integration, either intraenterprise or interenterprise. Secondly, they should think about insourcing versus outsourcing. They should think about which business services, exposed as Web services, they want to maintain and control in house versus which ones to outsource to other providers. They should ask which functions can be outsourced in order to avoid a custom build. Thirdly, they should think about ways to generate new service offerings and new forms of revenue by exposing certain business functions as a Web service. In all cases, low-risk pilots and proof-of-concepts are a way to get your feet wet with the technology and learn some early lessons. Web services are more than just technology; they need to be viewed from many angles including IT strategy, outsourcing strategy, and business strategy.
Initial projects can be prioritized by measuring the business benefit gained against the ease of implementation. Those that are easy to implement and which yield high business benefit are the quick wins that exhibit moderate or high reward for low risk. Of course, most of the major wins will lie on the high-risk, high-reward continuum and will require a corresponding amount of implementation effort and business risk in order to be successful.
Some of the early wins for Web services, as we have seen in the industry scenarios, have been in the enterprise portal space, either for employees, customers, or business partners. These portal applications ease integration efforts, handle higher levels of complexity and customization, and yield higher degrees of business functionality and customer satisfaction than prior Web-based techniques without the use of Web services.
A phased approach to deploying Web services can help one move along the learning curve by starting with low-risk internal deployments. It is perfectly acceptable for the first Web services deployed to be internal initiatives that help to create Web applications such as enterprise portals with reduced development costs. The business benefit in this example is simply the cost-reduction element for application development, plus the increased flexibility of the portal and its ability to better manage complexity in interactions and application logic. Web services are ideally suited to complex integration efforts which require integration across disparate operating systems, object models, and programming languages.
After the first phase of internal projects, the business can move on to externally oriented projects with prearranged business partners, and finally to externally oriented projects with dynamically discovered partners. In the later case, this type of interaction should be reserved for commodity services when security, trust, and service levels are less of an issue.
While the business is moving along these phases of Web services deployment, it is important to constantly update the inventory of business processes that are being codified as Web services. As the enterprise is virtualized, it is critical to document and update this inventory of processes since it becomes the digital blueprint for the company's operations. Additionally, reuse can be accomplished only via a thorough understanding of what is currently available within the blueprint. Web services implementations are particularly valuable when there are a high degree of complexity, a high number of business partners or processes involved in the final solution, a high transaction rate, and a high degree of change in business rules and data over time. They are therefore ideally suited to collaborative commerce activities which go deeply into the supply chain for manufacturers, or which cut across numerous sections of the value chain for services organizations.
Estimating Results
To estimate return on investment for Web services implementations, one can look either at cost takeout from IT investments when compared to other development approaches, or one can look at revenues produced as a result of new Web services offerings. In both cases, the return on investment over the long term can be significant, and for large businesses, it can be easily in the millions of dollars. As the industry matures, it is likely that return on investment models for Web services will migrate from today's current cost takeout focus to a more revenue-centric focus as deployments move from inside the firewall to outside the firewall.
Remember, the return on investment for the business should be measured not only in hard-dollar benefits but also by the hard-to-quantify factors such as increased business agility, increased competitive advantage, and increased migration toward the virtual enterprise. Customer satisfaction and the ability to deliver solutions that were previously too complex to justify are additional benefits of Web services. As in the DuPont Performance Coatings case study, Web services technologies can also be applied to solve traditional challenges such as customer relationship management. A Web portal deployed via Web services technologies can provide internal efficiencies that enable sales and customer service staff to focus on higher value contact and communications with customers, increased business agility, and improved customer satisfaction and loyalty.
In terms of hard-dollar benefits for cost takeout on the IT side, some of the initial figures are encouraging. Bowstreet reported cost savings of over 23 percent in an e-sales portal deployment for a customer in the high-tech manufacturing industry. The cost savings was achieved during design, development, and testing of the solution when compared to an alternate approach using more traditional Java coding tools and techniques.
Bowstreet also reported an annualized cost savings of $1.2 million in a portal site deployment for a Fortune 50 conglomerate. The division of the company on this initiative was focused on consumer insurance and investment products. The cost savings were calculated based upon the number of days saved in terms of development effort and the cost per day in terms of project resources. The cost savings were estimated via comparison with traditional Java coding tools and techniques. In this particular case study, the company also estimated net income of $475 thousand annually due to new cross-sell opportunities.
These examples from Bowstreet show that one of the main ways that Web services are currently being quantified is in terms of the reduced costs for application design, development, testing, deployment, maintenance, and enhancement when compared to more traditional software development techniques. This is an internal ROI for the IT department as opposed to a business-oriented ROI. As Web services mature and enable new business models, new forms of revenue generation, and new ways to dynamically interact with a number of business partners based upon real-time conditions and requirements, we can expect to see this ROI being quantified in terms of both IT and business returns.
The typical assumptions made by vendors such as Bowstreet for the return on investment for Web services include a 20 percent savings in design, development, testing, and deployment of the first application and then a 60 percent savings in the same process for all future applications. Additionally, maintenance is often assumed to be a steady five percent of the initial investment per year as opposed to a five percent annual increase in support costs. With these kinds of cost savings, a return on investment is rapidly obtained.
The challenge, given the emerging nature of Web services development, is to find enough metrics from early adopters and to validate that the assumptions are realistic. It is highly likely that the first few deployments of Web services may actually be more expensive than traditional software development techniques due to the learning curve for developers in coming up to speed on the new development tools, standards, and paradigms for component assembly and application integration. Once this learning curve has been crossed, however, there is a strong case for cost savings in the development lifecycle. Web services help to abstract the often complex integration requirements when assembling portals or integrating different applications running on different platforms. Some of the benefits are similar to those of the fourth-generation development tools and object-oriented development techniques. The ability to develop in a visual environment instead of at the code level and the ability to abstract development to a higher layer of integration, ideally at the business level rather than the technical level, can boost productivity considerably.
Beyond these cost savings within IT which help to reduce overall cost of ownership, additional benefits of Web services include the ability to deal with greater complexity and to integrate business partners and internal applications more rapidly. Service aggregation can also be used in order to create new forms of value by combining Web services from multiple sources to create dynamically assembled value chains from prearranged partners.
A high-level ROI model for Web services is as follows:
Return on Web services investment = Tangibles + Intangibles = (Increased IT productivity + Increased business revenues) / (IT costs) + Increased business agility
The increased business agility relates to the ability to create dynamic "business webs" with transactions formed in real time based upon business conditions and to integrate with more partners more easily via the Web services standards for integration.
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