Executives Guide to Web Services (SOA, Service-Oriented Architecture)

It will not be the technical elegance of Web services that ensures their adoption, but rather the business value that they enable. If no incremental business value is created, if there is no competitive advantage in building and deploying Web services, then they will not gain the traction that many industry watchers anticipate. The sources of business value for an organization are derived from the composition and implementation of its business model. The business model is a vehicle through which business strategy is implemented, resulting in the basic structure of the firm, its core business process, and the strategic assets and intellectual property required to deliver value to customers and markets. An output of the business modeling process is a value chain, through which day-to-day operational imperatives are executed.

The value chain is comprised of the totality of activities required to perform processes and transactions for markets and customers. The result is the products and value-added services for which customers will pay a premium. In order to be a viable business entity, an organization must be able to perform these activities at a cost that is less than that which the market is prepared to pay for the products and services. Fundamentally, this is the basis upon which any firm makes money, and is how markets are defined—by the revenue potential markets hold, and the profits that might be earned by corporations servicing that market’s customers.

Subsequent sections take a closer look at an organization’s value chain, considering three distinct value chain perspectives:

• The business value chain

• The IT value chain

• The Web services value chain

Business Value Chain

Web services can drive the business value in several areas. Where and how they are applied can have a positive effect in the following areas:

• Reduced Cost —of internal systems integration, which allows shifting IT spending and staff efforts to other strategic initiatives.

• Improve IT Agility —by deploying smaller, standards-based business applications only as they are needed, and avoiding large, monolithic software applications that often are not fully utilized.

• Improve Business Agility —by easing the transition to new business models, new markets, and new business applications.

• Improve Partner Interactions —by easing trading partner integration and driving the cost of partnering down. This situation provides a path toward trading partner fluidity and reduces the transaction costs of doing day-to-day business with a particular organization.

• Enhance Customer Service —via portals, Customer Relationship Management (CRM) and call centers by providing cohesive, contextual data from multiple back office and front office systems.

The following sections consider the business value chain from a manufacturing and services perspective. Chapter 5, “Vertical Market Implications of Web Services,” takes a more detailed look at the manufacturing and service industries, analyzing the potential impact of Web services on a number of specific industries.

Manufacturing Value Chain Figure 4.3 illustrates three versions of a generic manufacturing value chain. Each version highlights possible areas of Web services impact on business operations.

Figure 4.3: Web services and the manufacturing value chain.

These value chains illustrate the potential impact of Web services on supply chain management, product development, and sales and marketing.

• Supply Chain Management (SCM)—SCM initiatives will benefit from Web services by linking supply and demand information of a firm with its portfolio of partners and suppliers. This will result in lower inventory levels and reduced costs of inventory, as well as improved cash flow.

• Product Development —Web services can improve the speed of new product development by facilitating collaboration with partners during the product design process in the form of sharing critical product specifications and design documents.

• Sales and Marketing —In the third value chain, sales and marketing processes will be improved by forging closer relationships with current customers. This will improve the feedback loop to marketing and product development, as well as increasing customer service via CRM initiatives and other customer-facing business processes. Channel information flow to customers will be streamlined as Web services improve the distribution of product and pricing information to channel partners and direct customers. As a result, real-time customer and market intelligence will increasingly become available.

Service Value Chain Web services can have an equally dramatic impact on a service organization’s value chain, again in streamlining internal operations and eliminating the internal friction of business processes and information flow between information silos. As illustrated in the insurance industry example in Figure 4.4, customers and suppliers will benefit from the ease of interaction with various insurance carriers, as the electronic interfaces between them are increasingly based on Web services standards.

Figure 4.4: Web services and the insurance value chain.

Agents and brokers will be able to use Web services to create insurance applications and receive quotes from multiple carriers. Once a customer buys an insurance policy, the agent will be able to transmit the policy back to the carrier using Web services standards, and using that industry’s data definition standards for particular documents.

The big challenge will be how IT organizations and processes of today’s services organizations can deliver business value through the implementation of Web services. The business value chain and the IT value chain are increasingly interdependent, and with the use of Web services they will be even more closely aligned. The deep and broad effect that Web services will have on all organizations will enable the seamless merging of business and information processes.

Business will run more efficiently because of the ease with which information will be embedded into the basic operating fabric of the firm, enabling business processes to run more efficiently and smoothly, both internally and externally with trading partners. Information will flow across the gulfs of disparate systems and incompatible hardware, software, and application architectures, allowing the merging of content to support ever-changing business processes.

IT Value Chain

The IT value chain consists of all the activities required to deliver IT products and services to the business community of an organization. Very few executives have ever viewed their IT operation from a process or value chain perspective. Figure 4.5 shows a generic IT value chain, and includes the typical processes that are required to establish and operate an information technology organization.

Figure 4.5: Generic IT value chain.

As illustrated, the generic IT value chain consists of processes related to designing, building, and operating an IT operation. Specifically, these processes are:

• Perform Marketing —Assess the needs of the operation, gather the requirements of the business community, build IT processes into all business processes, and develop the strategy for IT operations to drive and support all business process and departmental functions.

• Develop IT Strategy —In concert with the business strategy, develop an IT strategy that maximizes business value, drives top line revenue growth processes, facilitates cost containment and internal operating efficiencies, and positions the organization for agile responses to market and business changes.

• Procure, Implement, and Maintain IT Infrastructure —IT infrastructure represents the majority of an IT budget, averaging over 50% of the typical amount organizations spend on IT. The IT infrastructure consists of computing facilities such as buildings; raised floors; air conditioning and power backup and protection; the local and wide area networking; telecommunications infrastructure; large scale computing resources such as mainframes, servers, and enterprise storage; and related software and staff support. The infrastructure is the foundation upon which all other IT processes and applications rely to drive business value for the organization. A sound infrastructure provides an organization the agility and adaptability required to manage the IT application portfolio and effectively respond to and preempt business change.

• Procure or Develop the IT Application Portfolio —The IT application portfolio consists of the suite of business applications that run on the IT infrastructure and support business processes. The functions of the application portfolio include secure and reliable execution of high volume business transactions (Enerprise Resources Planning [ERP]), financials, order management, financial management, procurement), providing online (or real-time) reports supporting business processes, generating printed reports as needed, and managing customer service and customer-facing interaction with the organization such as call centers and CRM systems. The application portfolio also includes portals, Web-based applications, online transaction systems, and all business systems that help the organization execute core business processes.

• Operate IT Processes and Manage IT Assets —Once the IT building blocks are in place and running, these assets must be operated and maintained to support the business. This consists of all the activities, processes, and personnel needed to effectively operate the infrastructure, run the IT applications, and provide the information delivery functions required to execute the organization’s business model.

• Measure IT Value to the Business —A critical function of the IT operation is to continually measure its contribution to business operations. IT delivers business value to an organization in many ways that are often overlooked by corporate executives. It is imperative that the metrics of information value are captured and assiduously reported to the entire business community to make visible the IT value contribution to the success of the organization.

• Maintain the Infrastructure and Application Portfolio —One of the most critical challenges for an IT executive today is maintaining the infrastructure and application portfolio of the organization in response to and, preferably, in anticipation of business changes. For example, managing the capacity of mainframes and large servers as new computing requirements are addressed can be a challenge as more powerful machines are introduced to the market. Managing network capacity and traffic in lockstep with business growth must also be considered. Storage capacity across the organization is also an issue. A more pressing challenge is managing the application portfolio and maintaining legacy applications while continually adding new business processes and business applications on top of the existing portfolio. In addition, the integration needs of the organization must be managed as, increasingly, data from multiple enterprise applications is aggregated, transformed, and distributed to modern, cross-platform applications such as portals and other Web-based applications. These modern, Web-based, front-end applications can extend the silos of functionality built into enterprise and point solutions into more appropriate functionality customized to the business process, department, or even user of the system based on profile and personalization information. This requires sophisticated integration capabilities that connect the systems, as well as aggregate and transform the content of these systems, to meet the needs of the everchanging business context of the organization.

• Manage Business and Technology Change —Similar to managing the infrastructure and application portfolio, managing business and technology change is perhaps more challenging. This is due to the nature and pace of change that is imposed upon the IT organization by two forces: changes in the external and internal business environment and changes in technology imparted by the technology vendors, standards bodies, and regulator agencies. The IT organization has to balance these forces against its internal processes for maintaining a stable and reliable computing environment on behalf of the organization. IT architectures must ensure that change can be accommodated from all of these potential forces by constantly evaluating and preparing itself for change.

• Manage Business Customer Service —The IT operation of an organization must have processes and procedures for providing and managing customer service levels for its constituents, namely the business customers that utilize the IT products and services. This ensures a feedback mechanism for the value that IT delivers to the business community as well as a proactive tool for obtaining new requirements of the business and planning for them in advance.

This brief overview of the generic IT value chain addresses many of the typical processes associated with designing and implementing an IT architecture from a clean sheet perspective, or managing an existing IT architecture that has been inherited by an incoming Chief Information Officer (CIO). However, once these steps have been completed, there are many ongoing processes and activities, at a deeper level, that bear mentioning. These are also illustrated in Figure 4.5, and are described below:

• Maintain/Upgrade the IT Infrastructure —Once installed and running, maintaining the IT infrastructure and managing new hardware and software releases is a major ongoing challenge.

• Maintain/Upgrade Applications —Once applications are developed or purchased, configured, and deployed, they have to be rigorously maintained and tuned based on usage and performance. Application maintenance for existing applications, whether they are older legacy applications, more modern client-server applications, or Web-based applications, can consume a substantial proportion of the IT staffing and budgets depending on the nature of the application, its architecture, and performance and business criticality.

• Add/Build New Applications —Adding new packaged applications or developing new custom applications requires fitting them into the existing IT architecture and the application portfolio that, in all likelihood, they will interoperate with. They will potentially integrate with other business applications, and will surely share the networks, the printing resources, and other common IT resources leveraged by the entire spectrum of business applications. If new applications will integrate with existing applications, consideration must be given to what level of integration is required and for what purposes. Depending on the level of integration, tools such as Extract, Transformation and Load (ETL), Enterprise Application Integration (EAI), and others may be required.

• Add/Build Application Integration —If multiple business systems must be integrated in order to support a new business process requirement or reporting need, often organizations will utilize EAI or ETL tools. These specialized products are designed to tightly integrate business applications in support of new business processes and information requirements. Portals, for example, often aggregate data from multiple systems and present information to users based on highly personalized needs. This level of complex integration between multiple applications usually requires additional tools to construct and maintain connectivity. Often, commercial integration tools impose their own proprietary architectures upon the organization in solving the integration needs of the organization. In turn, this adds to the maintenance burden of the IT organization as it strives to maintain the environment as well as effectively manage change in the form of new software versions, operating system changes, database upgrades, et cetera.

• Maintain Application Integration —Maintaining application integration can be a challenge for IT organizations as applications change, versions are upgraded, hardware platforms are changed, and all other moving parts of the modern IT architecture and application portfolio are managed. As mentioned above, the EAI tools of today can effectively provide tight application integration to support business needs. In solving the application integration problem for organizations, EAI tools provide adapters for the major ERP, CRM, and SCM applications offered by most vendors, and also provide the tools to develop custom integrations as needed on top of the “canned” adapters. The EAI tools in many cases provide for robust point-topoint integration between multiple applications, which can support high transaction volumes and provide robust and reliable system integration connectivity. Architecturally, these tend to be point-topoint solutions, or hub and spoke implementations that require custom code to be implemented at both ends of the intended integration environment. These application integration strategies can often become their own integration nightmare, causing the same integration problems that they were purchased and implemented to solve. The real rub is that they are hardwired into the enterprise applications and any new applications that originally drove the need to implement EAI solutions. In short, EAI can result in a complex IT infrastructure that fails to provide the flexibility and agility that it promised. Thus, while integration should be a major focus of an IT strategy as the application portfolio is tuned and adapted to meet ever-changing business needs, current integration solutions often result in another monolithic application that requires dedicated IT staff to maintain, based on changes to the applications it was supposed to integrate. EAI solutions, in summary, are intrusive, proprietary, and architecturally rigid pointto-point interfaces that can add to integration headaches over time.

• Add/Build/Maintain Business Integration, Enterprise Content, and Communication Channels —While internal application integration is a real issue for IT organizations, the real opportunity lies with business and content integration across organizational boundaries. An emerging enterprise software category is addressing the diverse content distribution requirements of complex business models by abstracting the extraction, aggregation, transformation, and distribution of business content from the multitude of enterprise systems and from the universe of business content recipients. This category, called enterprise business communication, focuses on abstracting the back-end system connections, as well as the recipient channels, through a robust, manyto-many architecture that provides a content-centric business integration scheme, as opposed to a point-to-point system integration approach. The compelling difference between these emerging classes of solutions is that they are content- and business context-based solutions. They manage enterprise business content across business systems, processes, and users by virtue of their content-centric architecture. These are not EAI solutions solely focused on integrating disparate systems. They are content-based business solutions connecting users with the business content they need, the way they want to receive it, and in the format they want to receive it.

• Add/upgrade IT Staff Skills —Finally, an IT organization must upgrade its skills continuously as technology changes, and as the IT architecture and application portfolio are maintained in support of changing business priorities. Skills maintenance can be especially challenging given the economic downturn, where training budgets are among the first to be trimmed, and where IT staffs are already stretched beyond their limits with maintenance and ongoing integration projects.

Given this discussion of the generic IT value chain, the compelling question is simple: “How will Web services change my business?” Again, the answer lies in establishing how Web services will alter the business and IT value chain for these same organizations. To do this we need to examine the Web services value chain.

Web Services Value Chain

The Web services value chain consists of the process of developing, publishing, finding, and generally ensuring the effective management and utilization of Web services. A complete view of the Web services value chain is illustrated in Figure 4.6.

Figure 4.6: Web services value chain.

The seven key elements of the Web services value chain are:

1. Develop (Also, Author, Compose, Create, Encapsulate, Expose)—This is the development process through which Web services are implemented using an Integrated Development Environment (IDE), application development tools, or encapsulating legacy functionality to be exposed as a Web service.

2. Describe —Once a Web service has been developed, a description of the service can be created and published in a UDDI registry. The description of the Web service will help potential users locate relevant services and determine their fit for current application development or application architecture needs.

3. Publish —Publishing a Web service to a private or public UDDI registry provides a central location from which services can be found for current use or future reuse. In the future, a service can be updated or revised and any applications using the service will automatically use the revised version if so desired. Applications may be assembled from a number of Web services, each located via the UDDI registry. Once a service is located, based on search criteria, a description of the Web service is returned along with a pointer to the location of the Web service.

4. Find —This is the process by which published services are located in a UDDI registry. An individual or application may search a UDDI registry to locate services that meet a number of specified criteria.

5. Assemble/Bind —Once there is agreement between the service provider and the service requestor regarding a specific Web service, they are bound together into a new Web service application.

6. Operate —This is the process by which a network of Web services is executed. As the number of Web service-based applications increases, organizations will need to establish environments where services can be effectively tested and deployed.

7. Manage —The management of Web services applications and environments will be critical to ensure that individual services do not become a bottleneck and that effective load balancing of service is maintained across the physical hardware that they operate on.

Given this generic and very simple Web services value chain, how does this differ from the typical IT value chain, and what areas of the IT value chain will be impacted? Furthermore, how will the corporate value chain be impacted such that top-line revenue growth can be increased, or bottom-line profits can be increased through cost reductions or operating efficiency gains? Can Web services deliver that kind of value to an organization? When and how?

As we have stated previously, Web services will change the way in which IT applications are built and deployed in support of the business. Web services will change the ways in which software vendors provide software to their customers, both business customers and consumers. Web services will change the way that existing application portfolios are maintained while adding new Web services. Web services will force changes onto the IT infrastructure as these new services are added internally, as well as being launched from outside the organization’s firewall and security boundaries.

Web services promise to change the way that IT value is delivered to the business in a number of ways:

• Modular Building Blocks —Business applications will be more modular, meaning fewer large-scale enterprise application implementations that can literally consume an organization for months or years. Ultimately, this translates into easier evaluation, acquisition, implementation, and faster time to business value, or ROI.

• Services Oriented —Some business applications may be delivered as services on a rental or transaction basis—remember the D&B example from Chapter 2—facilitating a pay-for-use model. For some software categories and capabilities, this may well spell the end of Volume Licensing Agreements (VLAs), where excess licenses are paid for, but left unused.

• Open Standards —Packaged applications will incorporate standards, including Web services-based; open interfaces; leveraging XML, SOAP, and WSDL. As the number of applications using Web services interfaces increases, the need for large-scale integration projects will steadily diminish.

• System Development —As Web services mature and are truly available on public networks, either manually or machine-searchable, they will be sought and evaluated by business users in conjunction with IT professionals. The business of acquiring information technology solutions will be initiated by the business in support of very specific needs. Small, modular Web services applications will be implemented in many cases without heavy IT involvement, management, or oversight.

These changes will bring the business and IT organizations together in seeking new sources of business value driven by information technology in general, and specifically using Web services.

Figure 4.7 shows how various elements of the Web services value chain might potentially impact the IT maintenance and the overall IT value chain. We will begin with the typical IT processes and work our way down to how Web services will radically alter the IT professional’s world.

Figure 4.7: Web services value chain impact.

• Application Procurement —A major task of IT is to procure or develop new business applications in response to business needs. This also has a related task under maintenance of the IT architecture and application portfolio, as well as managing business and technology change. These are challenging tasks for a typical IT organization given the rapid rate of technology change, complicated by dizzying rates of business change and economic fluctuations worldwide. The move to a Web services-based “services on demand” model promises to dramatically reduce the complexity of IT procurement.

• Application Development —Many development tool vendors are already offering sophisticated products that will help retool legacy solutions into Web services. Microsoft, IBM, Sun Microsystems, Oracle, SilverStream (now owned by Novell), Cape Clear, and Blue Titan are all examples of tool vendors that are offering powerful visual integrated development environments for Web services, whether migrating legacy applications or creating new Web services from scratch.

• Migration of Legacy Systems —Legacy and existing business applications will be retooled as Web services. This will be accomplished by selectively encapsulating legacy system functionality into modular services and exposing legacy system processes as Web services. The selective use of Web services to “open up” legacy applications to allow other systems to interact with them is one way that IT organizations can begin to migrate their existing IT architecture and application portfolio toward a service-oriented architecture.

• Integration of New Systems —Currently, when a new business application is added to the portfolio, there are multiple system interfaces required to make the incoming application co-exist and interoperate with the other business applications. Integration with applications such as portals, messaging backbones, enterprise application integration servers, and data warehouses are common points of interface for a new system. Using the common approach of EAI can be very expensive, as well as proprietary and architecturally rigid. Web services-based applications will be seamlessly added to an existing IT architecture with minimal integration effort required. Future applications will have Simple Object Access Protocol (SOAP) interfaces, and will use WSDL service descriptions to describe in advance just what services within the application do, how they do it, and what data they require to run. This will dramatically alter the value chain of IT, especially in the integration tasks required to add new applications or to maintain version currency of existing applications.

• Application Maintenance —Related to the process of managing business and IT change, and involves a number of maintenance processes related to the IT architecture and organization— infrastructure, application portfolio, integration connections, content and business integration, and even IT processes and skills of IT staff. Web services will have a tremendous impact on the processes related to procurement and maintenance of IT applications, as well as the processes of managing business and technology change.

• Change Management —Some of the most compelling value chain dislocations will be in the area of managing business and technology change. The middle value chain of Figure 4.7 shows the tasks a typical IT organization faces to manage change along the spectrum of infrastructure, applications, integration connections, business and content integration, staff skills and capabilities, and IT business performance. The immediate reduction in integration budgets for IT operations is clear and unambiguous based on the use of standard interface mechanisms and protocols for all Web services applications. Adding a new application that is built on Web services will significantly reduce the amount of integration effort required to make that particular application fit seamlessly into and function harmoniously with the existing application portfolio when compared to non-Web services applications.

These scenarios illustrate a number of areas where Web services will fundamentally alter the dynamics and economics of the IT value chain, thus impacting the entire IT industry. This section does not cover the entire spectrum of possibilities, but suffice to say that the changes will affect all aspects of IT value delivery. How technology vendors respond to changes in the value equation for information technology products and services will unfold over the next few years as Web services standards evolve, products and tools mature, and as adoption by organizations progresses.