VERTICAL MARKET ADOPTION AND DEPLOYMENT

The nuances of business strategy, business models, and organizational value chains can fundamentally differ by industry. Regardless of these differences, Web services can help organizations to increase revenue, reduce costs, and improve their cost structures. In so doing, it is possible to improve customer satisfaction and streamline interactions with partners. However, Web services are not a silver bullet or a panacea for all IT ills. There are many IT issues that remain unresolved by today’s corporations due to an inability to view IT as a strategic asset. With the implementation of Web services, it is critical that organizations look to align business and IT strategy at all levels.

Previous chapters have advocated the use of Web services in solving business problems. Chapter 3, “Web Services Adoption,” sets the stage for the adoption of Web services through the four phases of the adoption model: integration, collaboration, innovation, and domination. Chapter 4, “Strategic Implications of Web Services,” proposed that the adoption of Web services can only fully be achieved through a strategic perspective of how Web service can be leveraged. Ultimately, changes to an organization’s business strategy will have a ripple effect through the business model and value chain, requiring changes to organizational structures and business processes respectively. This concept is illustrated in Figure 5.1 below.

Figure 5.1: Business impact of Web services.

At the operational level, when leveraged within a firm to enhance the internal value chain, Web services can result in the following benefits:

• Value Chain Compression —to driving internal operational efficiency between business processes resulting in:

  • Reduced cycle times

  • Better order to cash management

  • Stronger customer relationships

• Improved Information Visibility —to support executive decision making, enabling time to be spent on making better business decisions rather than collecting the information required to make decisions

• Enhanced IT Capability —to support business operations across the value chain

• Greater IT Efficiency —achieved through improved data integration capabilities and superior information distribution

• Reduced Cost of System Integration —freeing funds to better support mission-critical business needs

Beyond these internal operational benefits, Web services can be leveraged to achieve even greater benefits from inter-enterprise collaboration. In this scenario, organizations may perhaps participate in trading ecosystems, gaining an equal footing with larger competitors by virtue of the low cost and simplicity of participation enabled through the use of Web services.

Adoption Patterns

The adoption of Web services must be balanced against an organization’s appetite for risk and the need for technology solutions to solve industryspecific problems. It is likely that some industries will be earlier adopters of Web services. On one hand, the early adopter will be those industries and companies that tend to be at the forefront of technology trends; quick to explore new approaches in an effort to achieve improved operational efficiency, revenue growth, and customer satisfaction; and overall, a basis for competitive advantage. On the other hand, the late adopter will be those firms that operate with more cautious, risk-averse stances toward technology adoption, waiting to see how others leverage a technology and follow suit.

In order to determine the focus areas and opportunities for adoption of Web services, regardless of industry, it is helpful to have a framework within which to evaluate Web services opportunities. This section reviews a number of alternative perspectives and subsequently develops a framework that provides a consistent, repeatable set of criteria for evaluating Web services opportunities.

As discussed in Chapter 3, “Web Services Adoption,” in the near-term— over the next two to three years—the integration and collaboration phases will be the primary focus for most organizations, as illustrated in Figure 5.2. Those organizations that have excelled during the integration and collaboration phases will be among the first to enter the innovation phase and push toward the domination phase. Based on this adoption model, our framework will begin with the premise that integration and collaboration opportunities will be the initial targets for most organizations. However, there are additional perspectives to consider as companies contemplate their initial thrust into Web services.

Figure 5.2: Initial focus on integration and collaboration initiatives.

Industry Perspectives

Forrester Research Forrester Research, ^[1] a leading technology research organization, proposes three broad criteria for determining business process targets for the application of Web services:

1. Recurring —processes must occur with high frequency and be used by many users

2. Dynamic —processes are characterized by volatile information with high rates of change, and users benefit from receiving continually refreshed information

3. Disconnected —processes that are isolated by system silos, process and organizational boundaries, or organizational firewalls

According to Forrester, organizations should forego complex collaboration activities and instead target business processes that can benefit from visibility of information for the user community and other process constituents. As the technology barriers to more complex collaboration are overcome, and as the Web services standards evolve and stabilize, firms can begin to consider more complex Web services deployments. To that end, Forrester recommends focusing on process visibility related to the following business operations:

• Sales and Service Processes —monitoring of customer order status, order fulfillment, Available To Promise (ATP) information, and pricing information for both customers and sales professionals

• Procurement Processes —real-time updates for purchasing forecasts and supplier commits, inventory levels and stock out alerts, and supplier delivery performance

• Supply Chain Visibility and Management —tapping into multiple enterprise systems to monitor inventory levels across the supply chain, supply ATP information, update customer order status, aggregate customer demand, and update production schedules based on real-time demand information

AMR Research AMR Research, ^[2] continuing with this theme, suggests Web services are appropriate where:

• Stable and predictable business relationships exist

• Established business processes can be leveraged

• Low volumes of data are being processed

• Transactional integrity is not a mission-critical requirement

Stencil Group Stencil Group^[3] identifies five areas of business challenges being addressed with Web services. These areas are as follows:

1. Reuse and Syndication —This involves Web services-enabling existing applications and then provisioning them for use by partners and customers.

2. Automation and Productivity —This can be achieved with Web services by eliminating manual integration processes such as File Transfer Protocol (FTP), e-mail, and other data transmission and receipt processes that require human intervention for completion. Additionally, automating inter-enterprise collaboration can significantly reduce the manual effort required for activities such as gathering demand information from customers, distributors, and contract manufacturers, as in the electronics industry.

3. Visibility into Operations —This can be achieved using Web services to expose data from multiple systems, aggregating it, and publishing to portals or other business applications. Supply chain visibility can be improved by sharing inventory data from multiple locations to provide a single, global view of inventory levels and inventory costs. Gathering and consolidating information such as customer forecasts, customer demand, and customer orders can be used to provide global visibility for supply chain planning purposes.

4. Exploring New Business Models —From a long-term perspective, organizations may have the ability to explore new business opportunities. Early adopters of Web services are implementing basic collaboration solutions with trusted trading partners. These firms are not yet deploying more sophisticated collaboration solutions based on business process management and complex workflows involving crossfirewall transactions. Early movement toward new business model development may come from Independent Software Vendors (ISVs) who will use Web services delivery models to deploy new software modules as subscription fee-based services rather than as perpetual licenses. Microsoft is already well down this path with its software licensing strategy, but the market place will likely determine how well accepted this business practice will become.

5. Common Integration Structure —As discussed, organizations will initially use relatively stable Web services standards (such as XML and SOAP) to integrate disparate back-end systems. This Enterprise Application Integration (EAI) use of Web services will drive increased sharing of information by building on existing EAI strategies and architectures. This system integration approach will spread from simple integration projects and EAI-augmenting initiatives to the implementation of a more robust Service-Oriented Architecture (SOA). These SOAs will support more complex integration within the larger enterprise, as well as extending the architecture to customers, partners, and suppliers. As the SOA extends to support more complex cross-firewall integration—as organizations truly move into the collaboration phase—we will see a rapid rise in business process and business model innovation.

Stencil Group suggests that over the next three years, there are three areas that will likely receive the most focus from Web services efforts:

1. System Efficiency —relates to both the integration of business systems as well as business operations, or “systems” in the larger, non-IT sense.

2. Employee Productivity —will be realized through better information availability and self-service initiatives for employees, partners, and even customers, which reduce employee workloads

3. Revenue Generation —can be accomplished via Web services deployed on the sell-side of an organization’s value chain. For example, customer self-provisioning for purchasing transactions or sharing internal systems and intellectual property on a fee basis.

Further, Stencil Group suggests that initial Web services projects should consider the following pragmatic criteria to help ensure the best use of resources and the most appropriate test bed for learning how to successfully deploy Web services:

• Repeatable Scenarios —Will initial Web services projects be reusable and provide benefits for a large number of users across the organization?

• Dynamic Data —Does data frequently change, and does it impact other departments, business processes, or systems?

• Self-Service —Will a Web service provide self-service benefits to broad audiences of customers, suppliers, partners, and employees, or can a business function or process be syndicated to trading partners?

Beyond the initial pilot of Web services, ongoing projects should target solving the following types of business problems or provide some combination of the following benefits:

• Unlock Information —break down information silos and expose information from multiple systems for new users and new applications.

• Free Up Resources —redeploy employees otherwise focused on Electronic Data Interchange (EDI) mapping, internal integration projects and maintenance, EAI interface maintenance, dedicated hardware and software for proprietary interfaces, or communication processes that can be replaced by Web services.

• Automate Processes —eliminate manual processes and human intervention where errors can be introduced into a business process, such as data cleansing, data extraction, file transfers, and data scrubbing.

• New Opportunities —look for other options and ways in which Web services might solve cross-organization problems via shared information, shared processes, or shared system functions.

Conclusions This brief review of various perspectives on how Web services may initially be leveraged has some recurring themes. Figure 5.3 illustrates these themes using integration and collaboration as the high-level criteria, and further categorizing these themes into business challenges, business goals, and business benefits.

Organizations should look for challenges similar to those identified in Figure 5.3, which represents an aggregated list from the analysis above. Once the target processes or challenges have been identified, the goals of the Web services project should be considered. These goals represent the potential benefits promised by Web services as they are applied to the business challenges. Finally, the business benefits in the bottom row should be sought by initial forays into Web services. These business benefits are at a high level and should always be quantified for the actual revenue, cost savings, or operational efficiency benefits that can be achieved by a given Web services project.

Figure 5.3: Adoption framework for Web services.

Deployment Perspectives

The last piece of this analysis framework must now be developed before examining specific industries and identifying how Web services might be implemented. The following four criteria provide generic characteristics for any company, and can be used to identify likely Web services adoption scenarios:

1. Industry Structure and Value Chain —What are the predominant characteristics of the industry of interest? What is the overall industry structure? What is the clockspeed^[4] of the particular industry? Consider the following aspects of industry structure:

   • Tightly bound or loosely coupled industry structures and relationships

   • High velocity versus slow velocity—industry clockspeeds, product clockspeeds, and process clockspeeds

   • Intensity of competition—dominated by a few large organizations or shared leadership by many organizations

   • Technology stance—characterized by early technology adopters versus technology laggards

2. Organizational Structure —What is the company’s structure, both internal and external? How does the firm interface upstream and downstream with suppliers and customers? What is the organization’s technology adoption pattern? What is the innovation rate of the company? Consider the following dimensions of organizational structure:

   • Internal structure—size of the organization, geographical coverage, industries participating in, markets served, and organizational structure to accomplish all the above

   • Sell-side structure—complexity of distribution channel, number of customer tiers Buy-side structure—complexity of procurement processes, number of supplier tiers (driven by product complexity)

   • Technology adoption tendencies—early adopters or technology laggards relative to competitors

3. Product and Service Complexity —The complexity of products and services, as well as the production assets and systems that generate the products and services, have a strong bearing on the structure of the organization as well as the structure of the overall industry. How complex are the products? Are the products assembled and modular, or are they processed products such as food, beverages, and consumer goods? If the products are services, what are the assets needed to compete (for example, physical equipment or intellectual property assets)?

   • Complex products consisting of discrete components and/or modules, such as electronics, consumer electronics, and automobiles

   • Complex products resulting from continuous or semi-continuous process manufacturing, such as pharmaceuticals, Consumer Packaged Goods (CPG), and food & beverage manufacturing

   • Complex products engineered to specifications, such as aerospace and defense, mining and harvesting equipment, and heavy machinery

   • Complex services requiring deep domain knowledge or expertise, such as consulting services, audit and assurance services, and business strategy services

   • Complex services with high fixed-asset requirements, such as transportation, logistics, and package delivery—Federal Express, UPS, US Postal Service, DHL, and so on

   • Complex services with high IT asset requirements, such as financial services, banking, insurance, healthcare, and so on

   • Simple services with high IT and related asset requirements, such as large scale retail and CPG, and database marketing

   • Simple services with low barriers to entry, such as temporary staffing agencies

4. Process Complexity —The complexity of business processes has significant bearing on the structure of a business and how a firm organizes itself to be managed and deliver value to its chosen markets and customers. How complex are business and production processes? How many tiers are there in the upstream (supply chain) and downstream (demand chain) and the overall value chain? Are processes tightly linked? How asset-specific and proprietary are production processes? How difficult to copy are they? Does process complexity create barriers to entry for competition?

   • How complex are business and production processes? How difficult are the firm’s business processes to copy and imitate? Does process complexity represent a significant barrier to entry for potential competition?

   • How many tiers are there in the upstream supply chain? How complex are the procurement processes that support the inbound supply chain?

   • How many tiers are there in the downstream demand chain? How complex are the sales and distribution processes that support the outbound demand chain? How difficult is the fulfillment process once a customer order has been received?

   • Consider the core production processes of a business, regardless of whether these consist of the conversion processes of manufacturing or the information processes of a services business. What single set of core processes represent the central value proposition the firm provides to its targeted customers and markets? How complex are these? How are these managed? How well understood are they? Can they be replicated by a competitor?

   • Think about Dell’s business model and how many companies, such as IBM, H-P, and others, have unsuccessfully tried to imitate it. While business processes may seem simple in concept, the ability to execute processes demands experience and familiarity that derives from intimate knowledge of those very processes. What processes differentiate a firm from its most direct competitor? How unique are the company’s processes in reality?

   • Finally, consider process complexity from a higher level, spatial and time-based perspective. Are processes tightly bound in spatial terms, closely associated in a geography or within a facility, or are they loosely affiliated and modular? What are the logistics processes that support these processes? Are processes tightly interlinked in time? Wine making and beer bottling are related businesses but have significant time bases driving their production. Newspaper production is high-speed and real-time, similar to electronics production and other high-speed industries. The speed of the industry and the processes associated with them are important issues to understand.

These generic industry, organization, product and service, and process analysis questions can be summarized as follows with the potential Web services applications identified as well as potential benefits.

• Complex Organizational Structure, High Business and Process Integration Needs —Potential applications include employee productivity, operational efficiency, global operational visibility.

• Complex Internal IT Environment, High System Integration Needs — Potential applications include customer service, employee productivity, business performance.

• Complex Distribution Channel, High Distribution Channel Integration needs —Potential applications include customer service, inventory management, demand management.

• High Product Complexity (Multi-tiered Bill of Materials), High Supply Chain Integration Needs —Potential applications include supplier integration and management, Supply Chain Management (SCM), inventory management.

• High Product Complexity (Production pProcesses and Asset Intensity), High Internal Integration Needs —Potential applications include internal integration, operating efficiency, production management.

• High Process Complexity (Production Processes and Asset Intensity), High Internal Integration Needs, Demand Management —Potential applications include internal integration, operating efficiency, asset utilization.

• Complex Procurement and Supply Processes, High Supplier Integration, and Supply Chain Management —Potential applications include supplier integration, supplier management, and SCM.

As shown, there are many factors that influence the adoption of new technology into an organization and, more broadly, into an industry. The intent of this section is not to provide a detailed and formulaic approach to exactly how industries and the organizations within them will embrace and adopt Web services. Rather we hope to provide a framework outlining how an organization might approach the investigation and eventual deployment of Web services from a business perspective.

In the following section, we simplify the earlier analysis using the Web services adoption model detailed in Chapter 3, “Web Services Adoption.” Again, it should be noted that integration and collaboration phases of the Web services adoption model should be the primary focus for executives over the next two to three years. Therefore, the analysis framework illustrated in Figure 5.4 is limited to these initial phases. Furthermore, based on the previous discussion, the integration and collaboration phases are each divided into subcategories for internal and external integration opportunities. This simple framework, when combined with the analytic framework discussed previously, provides filters to help focus Web services efforts on areas that provide rapid payback and real business value.

Figure 5.4: Industry analysis framework for Web services adoption.

Every organization must perform its own analysis of the likely areas where, based on their unique competitive pressures, Web services might provide return on the investment. This activity will require long-term thinking and executive advocacy in order for business success to be achieved. Figure 5.4 combines the integration phase and collaboration phase of the Web services adoption model with the context provided from considerations of industry structure, competitive intensity, and organizational structure, as well as product complexity, product life cycle, and process complexity. These forces will have a definitive impact on the integration and collaboration challenges that an organization will face in contemplating where to begin with Web services. This framework provides a foundation for examining a number of industries for the potential impact and benefit of Web services, and will facilitate intelligent targeting of initial Web services implementations.

^[1]Forrester Research, The Web Services Payoff, p. 6, December 2001.

^[2]AMR Research, “Web Services: Changing the Dynamics of Integration and Application Vendors,” August 2002.

^[3]Stencil Group, “The Laws of Evolution: A Pragmatic Analysis of the Emerging Web Services Market,” p. 24, April 2002.

^[4]Charles Fine, Clockspeed, 1998.