Chapter TWO. The Business Case for ESA


The fundamental challenge facing businesses today is to determine whether IT is the solution to problems, or is the underlying problem itself.

Where do you start? For the purposes of this book, we will begin with the problem of speed. The pace of business is quickening, no matter how large or small your company is or in what industry you compete.

For example, product life cycles are shrinking, as shown in Figure 2-1. Years of mature profitability have contracted into months, forcing product makers to move even faster to recognize new market opportunities, to tweak and compensate for changes in demand while the next new thing is still in the womb, and to begin planning the next revisions, spin-offs, or successors the moment next quarter's hit (you hope) is born.

All of this, in turn, accelerates the business from the very top in the CEO's office to the very bottom in the toll-free customer service trenches. If launching a new product is a function of executing a business processthat in turn is broken down into hundreds, if not thousands, of process stepsthen a dramatic reduction in time to market or time to volume is possible only if the coordination of those steps becomes proportionately faster. And it is becoming faster. Historically, businesses have predicted time to transparencyi.e., the time between posting a transaction and propagating the data across the enterprise, up the supply chain, and onto the balance sheetin weeks and months. Today Wal-Mart can predict its quarterly results two months before the end of a quarter. Today you can press a key and produce a P&L statement from a sale within minutes, seconds, or even subseconds.

Figure 2-1. The prerequisite for future growth


This transformation is taking place at the bottom of the organization, where thousands of eventsa new sale, a customer service record, or a new batch of market researchgenerate information that is created, sorted, analyzed, and processed by established IT systems. The first generation of enterprise applicationssuch as Enterprise Resources Planning (ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM), and others of their kindwere created to automate relatively generic, generally stable business processes relevant to single corners of the business. They comprised a hard-wired value chain that willingly exchanged flexibility and extensibility for an optimized operating environment. At the time, the tradeoff was well worth it.

But client/server systems haven't kept up with the accelerating pace of change, nor were they designed to. Neither were they designed to be opened, tinkered with, reconnected to each other, and otherwise recycled and recomposed to serve the actual, real-world business processes of the companies where they are installed.

This is why a corporation's ability to keep up with the pace of change is slipping. Accelerating product and service launches and reducing the speed of execution to near-real time requires changes to business processes that can't be performed unless the corporate structure and culture change, and unless IT supports those changes. Unfortunately, the current enterprise application architecture cannot support such change. Systems of record were built to automate common processes across all businesses and in specific verticals, not for adaptability. Meeting requirements to automate new processes frequently happens too slowly to matter or is too expensive to contemplate.

If the first problem is speed, the second challenge facing every business today is flexibility. How quickly and efficiently can you restructure your business to realize gains in speed and seek out new opportunities or answer competitive threats? Cultural preparation is one thing, but for IT to support this shift, the relationship between enterprise software and business processes must first be turned inside out. The internal logic of the applications must be engineered to reflect the external logic of the business process itself, which could be required to change in an instant if a new product is a blockbuster, is a bomb, is rendered obsolete by a sudden acquisition, and so on.

The pace of business is accelerating, but the current generation of IT has become calcified. All too often, IT is rightfully blamed as the bottleneck; its inflexibility is slowing its owners by standing still. But let's not get ahead of ourselves. Let's first tick off a few additional challenges facing businesses today:


Companies need to maximize their market by addressing every possible channel, fulfilling all customers' needs.

This leads to an array of choices that can sometimes border on the absurd, however, as companies try to satisfy even the most niche customer. It isn't enough for Apple to introduce and perfect the most outrageously successful consumer electronics product of the last five years, the iPod; the company offers a custom engraving option, too. And it isn't enough to have an online-only or retail-only sales channel, either; consumers feel entitled to purchase products whenever, wherever, and however they want, forcing the creation of new touch points and greater complexity. The same principle applies to service industries as well; the ever-finer parsing of customer demographics and desires results in the greater stratification of products and offerings, which in turn leads to shortened product life cycles and proliferating brand extensions in order to discover, capture, or cling to market share. Efficiency is what enables all of thisthe Internet, progress in logistics, distribution channels, and analyticsand more products are sold as a result. However, capitalizing on this requires new processes for the more efficient capture, mining, and utilization of consumer data, combined with faster, lighter-weight supply chains and manufacturing operations geared more toward flexible manufacturing than massive, high-volume runs. This is exactly the sort of real-world business process that cuts across enterprise application silos, giving rise to the frying-pan-or-fire choice outlined earlier: either succumb to inertia or suffer painful, expensive, and time-consuming change.


The dilemma of when, how, and how much to outsource and offshore.

Given the permanent cost pressures facing manufacturers in almost every industry, outsourcing has become a given for many who have already bundled off increasingly large and mission-critical portions of their manufacturing operations and supply chains to East Asia and beyond. While outsourcing and offshoring themselves are nothing new, the acceleration of the business landscape and the lure of greater efficiency have effectively led to the outsourcing of critical, nearly core activities. It isn't enough for Nike to send an order to one of its suppliers in China, sit back, and wait for delivery in six months. Today, the shoemaker is able to see the available manufacturing capacity of partners in that country at a single glance. Thanks to a key business process innovation in its supply chain, Nike monitors its outsourcing activities across China as if it were looking inside a single warehouse and production environment. The company is unwilling to offload a critical activity without some measure of control. The challenge for every company going forward is determining what it can outsource or offshore, and in turn, what level of visibility and control is needed for maximum efficiency.


Global markets, global competition, and global regulation.

The flipside of offshoring is market globalization. Your customers, as well as your supply chain, are just as likely to live in Mumbai, Singapore, or Seoul as they are in Frankfurt, San Francisco, or Stockholm. Competing for customers on the global stage demands its own supply chain solutions, as well as a new approach to sales and marketing that may require international acquisitions. (This creates another set of problems in terms of integrating your new division's business processes and IT with your existing infrastructure.) Global markets also create new demands on data integritysorting currencies and sales orders on the one hand, and conforming to regulatory standards such as the Sarbanes-Oxley Act on the other.

These are somewhat specific tactical and strategic issues facing businesses today, but underlying each are a pair of metachallenges with roots in IT. Before you can meet any of the preceding challenges, you must be able to answer a pair of more fundamental questions:


How much data is needed, how critical is it, and how should you use it?

Accelerating the speed of business is a challenge that ultimately boils down to data. New products, new markets, and new channels generate more of it; successful execution in all of these areas depends upon collecting that data, analyzing it effectively, and then passing it into the right hands in the right place at the right time. What is an effective business process if it's not a framework for describing what the right hands, the right place, and the right time are?

The first-generation enterprise applications effectively funneled data to a handful of power usersthe CIO and CFO, their respective inner circles, and so on. Today's IT architecture reflects the hard-wired value chain and centralized command and control commonly in place when the architecture was built. As noted earlier, however, the organization of business processes has sped away while IT frequently did not keep pace.

As the decision-making process becomes increasingly decentralized, the data associated with business processes is no longer the domain of a handful of power users, but is spread to knowledge workers across the enterprise. As more employees at varying levels are encouraged to become monitors and decision makers, they need data, analyzed and parsed to the appropriate level, to make these decisions as quickly and with enough context as possible. Institutional speed is the sum of the speed of these individual choices, and perhaps the ultimate challenge facing businesses today is to redesign organizational structures (and the underlying IT) to empower people along business process lines, rather than cultural, political, and ad hoc organizational lines. (Chapter 3 discusses the cultural challenges and changes related to ESA adoption.)

This means that today's corporations face the monumental challenge of redesigning the flow of data through the value chain. Events must complement transactions as the operational focusan IT architecture should be able to automate the handling of data and embed analytics throughout the value chain in order to foster management by exceptionthe moment data is passed to the right hands in the right place at the right time. We will discuss how to choose the right hands in more detail shortly, in the section later in this chapter titled "What principles should be driving my IT decisions?"


Just how many enterprise applications, data types, and business processes does anyone need?

You can always count on intense competition for at least one thing: market consolidation through mergers and acquisitions. The need (or at least the desire) to add new revenue streams, to add new international divisions, or even to just round out product portfolios sooner or later leads to industry consolidation (and that's just the nature of the software business itself). With acquisitions come a set of integration challenges that go beyond corporate culture. What should you do with the best-of-breed systems your company has just adopted, which you now have to merge, somehow, with both your day-to-day operations and your attempts to make sense of your already heterogeneous IT environment? (The result of past acquisitions, perhaps?)

Just as you must extract the logic of business processes from the internal logic of enterprise applications and allow it to drive the use (and reuse) of those applications going forward, you must also extract the data and functionality from those applications in the form of enterprise services to speed up, simplify, and reduce the total cost of ownership (TCO) of heterogeneous environments. The ESA transformation is about using existing systems of record to build a composite application infrastructure that enables cost-effective change. The old model was monolithic infrastructure with integration; the new model is service-oriented architecture (SOA) with composition.

Once they have embraced the new model, businesses can begin to recombine that data and functionality in ways that address all of the challenges outlined earlier. That, in the smallest nutshell, is the promise of ESA; it will free data and functionality from siloed processes, and it will redistribute both in units of enterprise services designed to serve the process logic of the business, not the internal logic of the software. The question then becomes, how will it do this?




Enterprise SOA. Designing IT for Business Innovation
Enterprise SOA: Designing IT for Business Innovation
ISBN: 0596102380
EAN: 2147483647
Year: 2004
Pages: 265

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