A BUSINESS PERSPECTIVE


The groundbreaking Harvard Business Review article, “Your Next IT Strategy,” [1] discussed a number of potential impacts that Web services might have. The authors speculate that the IT function might shift from a cost center to a profit center. This might be achieved, for example, where Intellectual Property (IP), locked inside internal applications systems, is repurposed and packaged as Web services, then offered on a fee basis over the Web. The barriers to entry for some markets will fall, as basic IT capabilities are delivered as “computing on demand.” [2] This new model for delivery of IT capabilities will allow small and mid-sized organizations to scale their business capabilities more cost effectively, helping them to avoid much of the initial capital investment typically required to implement a firm’s IT infrastructure. The funds released by this approach might be used as working capital to accelerate growth, or to minimize the need for expensive external borrowing.

These scenarios are a glimpse into the not-too-distant future of business-capabilities enabled through the use of Web services. Today it is very difficult to determine when, or even if, these scenarios will become a reality. From a pragmatic perspective, it is certainly realistic to surmise that Web services will be used as the basis for developing new models for information delivery, IT systems procurement, and application deployment. These models will have a significant impact on how businesses operate, allowing them to consider new possibilities for which markets to enter, which markets to remain in, and which markets to exit. Those companies that are late to adopt Web services may well be forced to fundamentally reconsider their business strategies as market dynamics shift under the pressures generated by early adopters.

Organizations using Web services will identify new ways in which to implement their business strategies, removing or circumventing inhibitors in their business models and value chains. As firms leverage Web services, it will be critical that their implications be considered as part of the strategic planning process, ideally starting with the organization’s business strategy and filtering down through the business model and value chain. As illustrated in Figure 4.1, Web services will have implications at each level of the strategic planning process.

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Figure 4.1: Web services as part of the strategic planning process.

The following sections look at elements of the strategic planning process, examining considerations for use of Web services as well as their implications.

Business Strategy and the Business Model

The process of developing a business strategy and implementing it as an operational business model is complex. This section does not delve into the specifics of developing a business strategy, but rather seeks to illustrate how Web services can impact or enhance an existing business strategy, opening up new target markets or changing the ways in which a firm interfaces with its partners, suppliers and customers. Web services will impact corporate strategy from a number of perspectives, such as the following:

  • Identification of Target Markets —Decisions regarding the scope of products and services and the determination of target customers and geographies may all require scrutiny. Where appropriate, Web services will be used to augment products, providing remote monitoring, maintenance notifications, and other value-added information services. They will serve as a basis for competitive differentiation by changing the ways in which a firm operates internally as well as with its trading partners.

  • Corporate Performance Management (CPM) —Historically, the ability to monitor business performance relative to business activity has suffered a significant time lag. Information derived from diverse and often disconnected sources needed to be collected and aggregated from disparate systems in order for it to be presented in a usable format, reflecting the organization’s structure. With the use of Web services, executives can expect to receive information that is accurate, current, and relevant to the organization structure. Armed with this information executives can more rapidly and effectively identify those operations that are under performing or exceeding expectations.

  • Customers, Partners, and Suppliers —Web services will play a significant role in how organizations interact in everyday trading relationships, particularly with customers. Web services will support supply chain visibility, enabling more effective inventory management across the supply chain and reducing on-hand stock levels and the frequency of stock outages. Channel partners will benefit from better visibility of inventory levels and customer demand across the supply chain. Customer service will be enhanced as Web services are used to integrate customer data from multiple systems into a single view. Call centers and customer service professionals will be able to provide better service by having more accurate customer information available at their fingertips.

  • Automation of Business Processes —As Web services adoption progresses, new business processes will be implemented, automating manual processes and collaboration with partners. These processes will become the fabric of the organization, affecting internal operations as well as interaction with customers, partners, and suppliers.

  • Organizational Agility —Agility will be enhanced as applications built using Web services are used to remove the constraints of a static IT infrastructure, creating greater flexibility for strategic planning. Over time the world of large, monolithic software installations may well be replaced by Just-In-Time (JIT) systems implementation, where business applications are implemented using Web services, from a portfolio of internally and externally published services. JIT system implementations will support new business models in which rapid IT response to changing business requirements is an accepted norm.

  • Organizational Structures —Structures will change as the transaction costs associated with customer interaction, supplier interaction, and IT provisioning are dramatically reduced through the use of Web services.

  • IT Strategy and Management —IT strategies will change, affecting the internal operations of organizations as well as the processes by which IT applications are researched, evaluated, tested, deployed, and eventually retired.

To take full advantage of Web services it will be necessary to develop a new approach to the use of IT. In order to maximize the business potential of available data assets, organizations must explicitly embed informationdriven competitive differentiators within their business strategy and business model. Only once this has been achieved can the full potential for superior performance be driven from the business model.

Creating Intimacy with Customers, Partners, and Suppliers The idea of getting closer to customers, partners, and suppliers has special relevance with the emergence of Web services. Given the high costs associated with integration and collaboration activities, Web services can be used to reduce the cost of sharing information, or linking with customers, partners, and suppliers. Web services provide open standards-based interfaces for access to information that will facilitate the partnering relationship.

On the customer-facing side (specifically commercial customers, not individual consumers) of the organization, shared information and linking can help align the core strategy of the organization with its value delivery processes. This assures that the products and services being delivered are truly valued by customers—of course, in this scenario value must be judged by customer-driven definitions. This linking element determines the value of products and services provided to customers and the feedback required to confirm that the products and services are what the market needs and wants. There may be opportunities to provide more value or different value that will differentiate one organization from another, resulting in market share gains and additional profits. Web services provide a critical vehicle for delivering additional value with products and services by forging a seamless information link to customers. They can provide lower cost interaction with customers at a more effective level, due to the ability to interface to systems for targeted business information exchange.

A critical consideration for creating intimacy with customers, partners, and suppliers is the need to define the organization’s boundaries, which are based on what the organization performs in house versus sourcing from suppliers, or outsourced to partners. This situation introduces the notion of business transactions based on Ronald Coase’s research. [3] This research suggests that if a particular business activity can be performed at lower cost outside the organization than inside, and it is not vital to the core corporate strategy to own the resources or the processes, then it may be outsourced. The way an organization determines what remains core and what is noncore can have serious implications for strategy achievement as well as the cost structure of the value chain. This becomes a vital linking element, especially given the information processes that must be implemented to achieve it. Web services promise to impact these decisions as the cost and effort of partnering, especially in forging tighter information links with new suppliers and partners, is reduced using open standard interfaces implemented using Web services. Ultimately, this means that more partners can be used to drive value on the input side of a business, which will result in structural changes to organization boundaries, based on outsourcing and co-sourcing strategies with suppliers.

The Friction Free Enterprise Web services will eliminate much of the friction in conducting internal and external business operations. They hold the potential to reduce an organization’s internal transaction costs, but more importantly, they will dramatically reshape interactions between business partners. Transaction costs in existing value chains will be eliminated, and in some cases shifted to other areas of the value chain. Current industry structures will be challenged as the value propositions and viability of business processes, and in some cases entire businesses, are fundamentally impacted. This re-shaping of industry and business structures will be wrenching for organizations that do not anticipate them.

As discussed, Ronald Coase[4] suggests that transaction costs define the size of an organization as well as the business operations that it should perform. Firms that can perform business tasks more efficiently using internal capabilities and resources will keep those functions within the organization. As soon as it becomes less efficient to perform those business functions internally they should be outsourced, with the size of the organization shifting to accommodate the smaller set of internal functions. It is the distribution of transaction costs across a value chain that defines the economics of an industry and its structure.

Figure 4.2 illustrates how Web services will be embedded in every aspect of a business model, and therefore all corporate processes and functions, in order for organizations to reach higher levels of business performance. This figure demonstrates how Web services will be pervasive, being adopted both within corporations as well as across industry value chains.

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Figure 4.2: Web services and business models.

Change Is the Only Constant There will be far-reaching changes as Web services are infused into an organization’s business model. Firms will need to adopt new modes of internal operation, from core strategy and strategic resource decisions to the ways in which it interacts with its customers and suppliers. These changes will extend to affect even the most basic preconceptions of how the company is configured to interoperate and drive business value.

The application of Web services can hold particular relevance for alignment of business and IT architectures, based on their inherent modularity and ease of integration into current business and IT architectures. Organizations that adopt Web services will have far more business and technical agility using smaller, focused application functionality versus large, monolithic enterprise applications. This means that changing the business architecture—the structure, processes, and capabilities of an organization—can be achieved more easily in support of information-based competitive initiatives. In parallel, introducing new business processes supported by information systems will be easier due to the anticipated ease of adding Web services-based applications to the IT portfolio. The actual footprint of Web services-based software applications, as they are eventually developed and marketed by software companies, remains to be seen, but the hope is that future applications will migrate away from the monolithic and complex enterprise applications of today, and will require far less custom integration to be incorporated into an existing IT portfolio.

Enabling Operational Flexibility and Agility Operating flexibility and agility provide an organization with the ability to refocus its strategy and resources quickly in response to new opportunities and threats. This ability may allow an organization to balance margin erosion in its core markets or product lines by quickly adjusting to provide new products, adding new value to existing products, or driving costs out of the current production processes.

Firms invest in flexibility and agility in a number of ways. For example, manufacturing companies have spent hundreds of millions of dollars investing in robotics, programmable logic controllers, and flexible tooling. All of these assets are reusable for new products and manufacturing lines due to their ability to be reprogrammed to suit the design data of new products. Web services hold a similar promise, through the use of lean, JIT, system development to rapidly respond to changing market and competitive conditions. Being able to tune and adapt a business model using Web services internally and externally will allow executives greater flexibility to respond to business challenges with unprecedented speed and agility. No longer will there be the typical 12-month plus lag between a business decision and the availability of systems to support the business direction. Coordination and alignment of the business and IT architecture to support corporate strategy and the business model will be a natural process, and it will provide competitive advantage to corporations as Web services become the basic building blocks for implementation of the enterprise systems architecture.

The preceding sections have illustrated the potential of Web services in several areas of an organization’s business model, but actual implementations will vary by company and the markets in which a company competes. Viewing Web services from a business strategy perspective will help forge a dialogue between business and technology executives, resulting in shared purpose in driving new business value. Web services can provide the potential for firms to find new ways to grow revenue, realign costs, and improve productivity across the entire value chain. It will be this potential that will ensure that business impact and true business value drive the implementation of this emerging technology.

[1]Harvard Business Review, October 2001, “Your Next IT Strategy” by John Hagel III and John Seely Brown.

[2]CNET News.com, October 30 2002, “IBM talks up computing on demand” by John G. Spooner and Sandeep Junnaker.

[3]See Ronald H. Coase, “The Nature of the Firm,” The Firm, the Market, and the Law. Chicago: University of Chicago Press, 1988, 33–56. See also Ronald H. Coase, Essays on Economics and Economists. Chicago: University of Chicago Press, 1994.

[4]Ibid.




Executive's Guide to Web Services
Executives Guide to Web Services (SOA, Service-Oriented Architecture)
ISBN: 0471266523
EAN: 2147483647
Year: 2003
Pages: 90

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