2.3 Changing Economic Landscape

The business landscape has been changing drastically during the last five years . New business models have brought surprises to traditional business corporations and financial institutions. For example:

• Could a courier company provide trade financing (Letter of Credit service) to traders? Yes, UPS Capital, not a pure-play courier company today, has emerged as a financial intermediary for different trade financing services to major buyers .

• What is the largest financial institution in the United States? Is it Citigroup? Nope, it is General Motors. It finances every car it sells to consumers.

The Internet and its associated technology have also played a significant influencing role as well. We have seen megamergers or acquisitions, competing Web delivery channels, and new emerging financial intermediaries. These forces have helped the industry evolve , as in the transformation of traditional financial institutions in a changing marketplace , changing their focus from product-centric to customer-centric, and providing more customer-initiated services, convergence of different banking and securities services, emergence of mobile commerce, and integration.

2.3.1 Business Challenges

Achieving a lower operating cost, or Total Cost of Ownership (TCO), is probably the key business challenge for today's business. This is particularly important in a slow economy. To become more competitive, many traditional institutions (so-called bricks and mortars) have transformed themselves into responsive service organizations. The fundamental business models may need to adapt or change completely in order to survive. Moving from product-centric to customer-centric models, Customer Relationship Management (CRM) has become inevitable in many firms.

"White labeling" of services is another growing trend. Traditional businesses, which do not want to invest in expensive infrastructure in order to deliver a new business within a short period of time, now turn to established service providers to share their infrastructure, while keeping their branding intact. Some firms may give up their existing delivery channels and white label other infrastructures for a lower operating cost. For instance, JPM Chase white labels TradeCard for their Business-to-Business (B2B) payment service, Amazon online store white labels Target, Toys "R" Us, and Borders.

Business process automation and service integration are driven by reducing costs, improving accuracy, and aggregating and matching customer information against transactions from multiple sources. However, dynamic business changes often result in building one-time services and components in silos to meet time-to-market requirements. Integrating these silos with legacy systems, for example, will unavoidably incur more cost. Thus, what integration technology should architects and managers choose in order to develop a solution that can bear minimal cost, while providing a time-to-market solution that improves accuracy and aggregates customer information from legacy systems and silo applications?

The current business model often dictates ever-increasing integration with preferred partner sites. A strong business branding requires tighter B2B integration, but cross-enterprise integration is extremely complex and time-consuming . This often involves business process re-engineering, compromising certain system functionality in order to accommodate single sign-on and automated order processing. But, a shallow business integration model may simply require, for instance, URL hot-links (that is, URL rewriting) on both Web sites.

Large corporations and new mergers often have multiple services and business units that are not integrated. In other words, these business units have many stand-alone systems in silos, and these systems do not share information between applications. Customer account information is often stored in duplicate, or not synchronized across different accounts (such as different addresses) even if under the same customer name . Integrating different newly acquired companies is complex and time-consuming, especially when you must customize to accommodate proprietary systems and interfaces. For instance, a customized interface with a private Foreign Exchange marketplace may take from six to nine months.

There is an increasing demand for a high level of Quality of Service. The general awareness of and expectations for scalability, performance, and availability are higher, as people realize the pitfalls of the many Internet commerce and online stores that have struggled in the past few years.

2.3.2 Technology Challenges

Nowadays, most customers expect customer and financial information to be readily available and aggregated at real time. This requires interoperability across heterogeneous platforms (such as integrating legacy mainframe, Unix, and Windows systems) and with business partners ' systems. If using multiple product solutions, the expertise and service support skills needed to provide such functionality are also demanding.

In a cost-reduction environment, there is a stronger motive to optimize existing system capabilities and leverage the existing legacy system functionality. From the IT management perspective, reusability and maintainability are top priorities. A classic example is the mobile commerce services in Japan, which need to be cloned and customized for each of the local telecommunications service providers (NTT DoCoMo, J-Phone, and KDDI EzWeb). A reusable device-sensitive XML-based mobile commerce would be attractive.

Most integration deals with complex legacy back-end systems. Unfortunately, these legacy systems are often undocumented, and the interfaces work like a black box. The original developers may not be with the company any more. Thus, partners dealing with business integration need to evolve their technology independently on a trial-and-error basis.

2.3.3 The Web Services Alternative

Many of the challenges depicted above can be addressed by re-engineering business processes, introducing new and innovative product technology, upgrading to new versions for better performance, deploying EAI products for cross-platform integration, exploiting tactical and point-to-point interfaces such as screen scraping, or customizing proprietary APIs to meet the customer requirements. In some cases, these are expensive and time-consuming options.

On the other hand, XML Web Services technology already addresses these challenges and is a good alternative with the use of open standards to interoperate between legacy systems and vendor-dependent middleware/EAI. It overcomes some of the technical shortcomings of existing technologies (such as EJB/RMI over firewall), provides time-to-market with easier integration, and allows reusable components (for example, for partner integration and lower operating cost).

Web Services technology provides a single, common framework for many business services and many partners. It enables "loose coupling" with stable interfaces and a common code base. Besides, Web Services technology is integration-ready. In other words, it can be designed to support a high Quality of Service infrastructure. It also has the framework to support federated identity solutions.

For example, People's Insurance Company of China, a large national insurance company in China, uses Web Services technology to update and share customer information among call center applications, the enterprise portal, and back-office systems (an IDC case study is available at www.sun.com/service/about/success/recent/picc.html ). Legacy systems functionality can be wrapped as Web Services and accessed via a SOAP service call, the enterprise portal, or the call center. It allows large enterprises to better manage their customer relationships with timely account information and re-use existing infrastructure at a lower cost of ownership. Without it, architects may need to rewrite the back-office systems or spend enormous resources in building one-time interfaces between the call centers and the back-office systems.

Another example is the use of Web Services technology in providing white label services by wrapping existing business services, publishing in Web Services calls, and enabling customers to subscribe to them. i-Deal ( http://www.i-deal.com/ and http://ws.demo.i-deal.com ) is a financial services company that provides an online intelligent engine for capital raising using the Application Service Provider (ASP) model. It uses Web Services technology to handle deal calendars, indication of interests from proprietary systems, synchronizing client data between systems, and so forth. Customers can subscribe to the capital raising service with white labelbranding. This solution addresses the total cost of ownership issue by reusing existing infrastructure and interoperating with legacy systems.

There is more industry-wide support seen in application server and middleware vendors , including Sun, IBM, Microsoft, and BEA. As Web Services become more pervasive, partners will be able to implement B2B integration more easily and quickly.

2.3.4 The Web Services Phenomenon

John Hagel III and John Brown, in the Harvard Business Review (October 2001), describe Web Services as the next IT strategy. They emphasize that Web Services technology is a solution that addresses data silos or restrictive ERP-based enterprise architectures and is a cost-effective approach to addressing integration with external processes and institutions. It is also a risk mitigation to obsolete technology, making it easier to adopt outsourced or managed services using standardized and plug-and-play Web Services.

Business Perspective. Web Services technology enables aggregation and re-branding of heterogeneous services across the enterprise and white labeling of business services that can meet time-to-market requirements speedily. It also allows faster partner integration, providing better integration tools and a better framework for legacy systems and mainframe integration.

Technology Perspective. XML becomes a common business data language and interface standard between systems. Java technology, XML, SOAP, UDDI, WSDL, and ebXML are building blocks for implementing Web Services. ebXML also offers message services and business process elements that are designed to address bigger problems such as security, reliable messaging, business processing, and Quality of Services for transaction processing.