BUSINESS VALUE FROM WEB SERVICES

Web services will drive new levels of collaboration between companies in existing value chains as well as enable new relationships with trading partners in emerging value chains. This situation will occur because of the friction reducing promise of Web services, making it easier to perform B2B integration at the business process level. The last several years have witnessed the rise of middleware solutions to solve the problems of tying business systems together, to perform transactions and information exchange across organizational boundaries. Enterprise Application Integration (EAI) tools emerged, messagingoriented middleware took hold, and a host of similar solutions addressed the need to make application portfolios work together within the organization and across organizational boundaries. Middleware solutions, and now Web services, present the opportunity to solve a number of broad business and technology issues, including the following:

• Reintroduce the business flexibility that Enterprise Resources Planning (ERP) and other large, enterprise applications removed through rigid business process definition and proprietary application interfaces.

• End the debate about IT alignment by allowing the idea of Just-In-Time (JIT), or the implementation of new applications as the business needs them without the implementation and integration lag that accompanies large, enterprise software implementations.

• Extend CRM, ERP, and other large, monolithic software applications to add new business functions or capabilities in response to changing business needs.

• Provide connections to other trading partners for collaborative processes such as forecasting and supply chain planning, transaction management, and others.

• Help organizations manage change given their existing reliance on large, legacy systems and change-resistant business processes.

• Revolutionize the corporate computing model for software-producing companies, for software-consuming companies, for hardware and infrastructure companies, and for services companies.

Specifically, Web services promise to deliver the following high-level benefits to organizations:

• Support application integration internally and externally, across the firewall.

• Provide easier B2B collaboration between business partners.

• Transition software deployment models from big-bang, high-footprint implementations to just-in-time applications that are appropriate to the business challenge being addressed. This is the beginning of the idea of Just-in-Time Information Technology based on Web services. Software rental models and grid computing are simply specific subsets of the idea of JIT IT.

• Reduce costs of software procurement, deployment, and integration.

• Increase business and technology agility by deploying loosely coupled business applications versus monolithic enterprise applications.

Why Was the Internet Not Sufficient?

One question about the Internet is why it was not robust enough for true B2B collaboration, as well as for complex processes that span multiple Web sites or multiple organizations for Web transactions. The Internet rapidly evolved for B2B transactions, yet it fell short for complex collaboration between organizations due to the following issues:

• Lack of standards for B2B integration and B2B automation

• Manual searching of Web content by browsers versus registry-based applications that find one another and auto-invoke (this result is a future but possible scenario)

• Emerging standards such as XML have already become fragmented, diminishing their ability to create consensus among industry solution providers and consumers

• Internally-focused application procurement and deployment models

Of all these, the most difficult to overcome is probably the internal IT architectural models of organizations. Internally focused application procurement and deployment models have to date dominated the IT architecture of organizations, in contrast to collaboration-centric application models. Most IT architectures of today’s corporations are based on a singlecompany view of their own internal operations. That is not necessarily bad or wrong. It merely means that an organization’s investment in its IT architecture—its infrastructure, transaction systems, and application portfolio— has been focused on internal operations and efficiencies, not on interacting with trading partners and customers. In various industry value chains, for example, the application portfolio of the dominant firm in the value chain exerts a strong influence on how its trading partners interact, both with the dominant company as well as among the trading partners. This dominant application influence often forces trading partners to embrace the nuances of that architecture and the interfaces to the ERP applications. In an SAP-centric extended enterprise, trading partners will have to interface to SAP to exchange forecasts, purchase orders, and other B2B transactions.

However, in today’s business world, collaboration with trading partners is fast becoming the rule, not the exception. Companies understand that significant benefits can be realized through better cooperation and information sharing with their customers and suppliers. Their existing application portfolios, however, are not built for collaboration across the firewall with outside agencies. Web services offer a way to bridge the gap and overcome the legacy of internally-focused IT architectures and application portfolios.

Business Process Collaboration

Web services will enable business collaboration at the process level. Process-level collaboration requires new software architected for collaboration across corporate firewalls. Web services will be the foundation for creating these new applications. Business Process Collaboration (BPC), augmented by electronic means over the Internet, has wide-reaching implications for the ways in which business will be performed. Many organizations have not had the discipline or desire to focus on business processes as a legitimate pursuit, largely as a result of the ongoing backlash against the business process re-engineering phenomenon of the 1980s. However, as the word “collaboration” has entered the mainstream dialog of business and IT professionals, the sharp edge of re-engineering has been dulled. Collaboration as a discipline is on the rise as the Internet continues to thread its way into organizations around the world.

We can simply define collaboration as cooperation to achieve a particular goal or goals. Collaboration involves teaming, sometimes with competitors, to achieve a higher, shared purpose. This is sometimes called co-opetition, which refers to the periodic vacillation between competing with organizations and cooperating with organizations based on market dynamics, competitive pressures, or other business forces. Collaboration has been around in various forms for many years, including incipient technology implementations such as Electronic Data Interchange (EDI), point-to-point interfaces between application systems, and other means. What is different is that the Internet has opened the door for organizations to exchange information electronically over a set of agreed-upon standards, collectively known as the Internet standards of TCP/IP, HTTP, and XML. The Internet altered the cost structure of collaboration for organizations because of the global acceptance of these technology standards. EDI has been around for years, for the most part implemented by large corporations that could afford to install the technology for interorganization purchasing processes, forecast sharing, payment and reconciliation of shipments, and more. The Web has changed the cost equation for exchanging business information between firms, which means the price of entry is now much lower. A rich variety of new solutions are embracing collaboration, or c-commerce as some analysts have dubbed it. Early implementations of collaboration demonstrated the potential—yet they also illuminated the shortcomings of existing Web technologies and standards to support this rapidly emerging space. But the act of collaborating with another organization, not to mention many organizations, requires new ways of connecting businesses together. Collaboration is far more than the static exchange of email or spreadsheets. It is interactive. It is live, or real time (or should be as required by the business process being driven by collaboration). Business process collaboration necessitates more than limited information exchange.

The brutal shakeout of dot-coms, further complicated by the economic recession, proved that despite all the glamour of e-Business and technology, there was an obvious problem. The business environment had not really changed for most businesses, and the rules of survival had not changed either. Business models were still stagnant, fixed, and unchanging. IT architectures are still ERP-centric, prone to inflexibility, and very difficult to customize and extend to support emerging business needs. These application strategies lock an organization into a fixed way of conducting internal operations according to the business model of the software vendors. Implementing a typical ERP application requires the adoption of a view of internal operations that substantially complies with that of the software vendor and its other customers. This situation removes opportunities for unique competitive advantage through business process execution and operational excellence.

ERP-centric architectures are based on the architectural philosophy of internal operations efficiency. Building a single view of internal operations based around a centralized database of the organization allows visibility of financial metrics, inventory levels, customer information, orders, and more, all in real-time. This capability is powerful, despite some of the issues that attend these implementations. These issues include, but are not limited to, the following:

• Rigid architectures freeze corporate operations into a fixed, inflexible model

• Complex architecture means changing one module often necessitates changes in many other modules

• Large software footprint and module inflexibility result in long, expensive implementation cycles that, when completed, are already outdated

• Internal orientation and architecture of ERP systems limits the ability to engage in collaboration with outside trading partners. This situation is primarily due to proprietary application interfaces and business process inflexibility forced onto a business by the ERP architecture

Streamlining internal operations and allowing financial management of an organization’s operations was a significant benefit of ERP systems. However, times have changed for all firms. Inward-focused systems and business processes can only deliver limited value in a world dominated by a desire, and more importantly a mandate, to work with other trading partners to accomplish business success. The rapid rise of the Internet exposed the inadequacy of ERP and other enterprise systems to rapidly accommodate new business processes. As new business needs continued to grow, the increased need for agility and new business functionality has outstripped the ERP capabilities of today.

There has been a dramatic shift from the internal focus of ERP systems to collaboration with outside trading partners. This shift from internal operations to collaborative interaction with external trading partners has challenged the business processes and the IT application portfolio of most organizations. The shift to the front for CRM and other e-Business applications has placed an unprecedented demand on IT systems, and the need to securely share internal, potentially sensitive, information will continue to increase. However, as these inter-enterprise collaboration requirements continued to grow, the technology supporting collaboration proliferated. Enterprise application integration and other collaboration products emerged as the next hot space. EAI continues to be an important area, and will serve as one of the critical pathways to Web services because these tools are designed for connecting systems and enterprises across the firewalls.

As you will see from the Web services adoption model—introduced in the following section—pragmatic uses of Web services will carry us for the foreseeable future. As the standards and technology progress, more sophisticated Web services capabilities will emerge.