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5 Business Reasons to Service-Orient

by Jason Bloomberg and Ron Schmelzer

August 11, 2009

Service orientation offers real business benefits in five key areas: reduced integration costs, automated business-to-business interaction, easier regulatory compliance, user empowerment, and the ability to react to change more quickly.
 

Service orientation is a business philosophy — a new way of thinking about organizing your business and its processes. Both service orientation and its related technology concept, service-oriented architecture (SOA), enable business to use technology in a flexible, agile manner. Let’s look at an example to see the effect service orientation can have on a business.

Carla is a call-center representative for a bank. She takes calls from banking customers and accesses various systems on her computer to help address each customer’s question or concern. In the world of tightly coupled, inflexible, monolithic IT systems that existed before service orientation, Carla’s day-to-day work involved several applications. Every day she would perform what techies facetiously call “swivel-chair integration”: While on calls, she would jump from one application to another, sometimes copying and pasting information to perform integration manually using her own experience and intuition to get certain information from one system to another.

Despite her best efforts, Carla occasionally makes mistakes that she or another call-center representative have to fix later. Although her boss has repeatedly told her that an important part of her job is advising customers about products they might be interested in, she has a difficult time understanding which products are right for each customer. Simply put, each system exists in its own universe, requiring the human operator to piece the business process together, resulting in inefficiency, lost productivity, low quality, and more errors.

After her bank implements SOA, however, Carla’s daily life becomes much simpler. The bank implements a composite application that uses all her existing applications, but combines them to offer the same capabilities she formerly achieved manually. Now, she can spend less time on each call, and information about her customers is at her fingertips. She can identify at a glance which of the bank’s products will be of most interest to the customer, leading to increased sales for the bank and a bigger bonus for her.

Furthermore, as various business changes work their way into Carla’s inbox, she can make adjustments quickly and efficiently. Maybe it’s a new marketing campaign followed by a regulatory change, or maybe a new product the bank wants to promote. Service-oriented tools are so powerful, flexible, and easy-to-use that Carla can take advantage of them to do her job regardless of the changes her boss throws at her.

It’s important to note that we didn’t mention specifically what kind of tool Carla is using to do her work now, because it doesn’t matter. The point is that regardless of which tool is appropriate for a particular situation, the tool is now powerful enough to make use of composite services that pull various IT functions and data from different systems into whatever arrangement makes the most sense for the user. In other words, from Carla’s perspective, IT resources are nothing more than business resources she can use, as needed, in her work. Through the power of loosely coupled, composite services, service orientation has empowered her, and she doesn’t need to know the technology behind the scenes that makes it happen.

Service orientation offers five business advantages.

1. Reduce Integration Costs

Companies must lower IT costs to lessen their overall spending. The current rule-of-thumb is that spending must decrease each year, posing a challenge to companies that must not only maintain existing IT systems, but also implement new technologies and approaches, such as SOA. Although architecture requires new spending, it can greatly reduce other IT spending.

For example, SOA reduces the need for tightly coupled middleware. As companies resolve their integration challenges architecturally, they have less need for enterprise application integration (EAI) and other middleware. Although architecture requires an upfront investment, it costs significantly less than the amount that many firms spend annually on middleware. The cost reduction from SOA is more than just the elimination of software licenses. It also means fewer hardware systems, consulting services, and even internal staff they need to manage the remaining system complexity.

SOA also promises to eliminate redundancy by increasing the reuse of IT assets. Some companies have spent millions of dollars implementing the same basic projects over and over again for different purposes. For example, most companies implemented their first customer databases a few decades ago, but they re-implement that same logic in their CRM, ERP, portal, and Web-based systems. This redundant and unnecessary spending only ends when you can truly reuse IT capabilities. SOA enables companies to build services once and reuse them many times to solve different challenges as they arise.

2. Business-to-Business Interactions

Enterprises of all sizes have long sought to automate business-to-business (B2B) interactions in a reliable and secure manner. The increasing globalization of business has resulted in suppliers existing anywhere in the world, covering many different countries, languages, and time zones. This globalization has added challenges and pressures in the effort to optimize supply chains, increasing the value proposition of IT systems based on SOA.

Today’s standards-based interfaces and document formats are fast becoming the lingua franca of disparate, heterogeneous information on the network, and Web services represent a new, open-standards-based approach to getting systems to integrate with one another. Rather than planning in advance how a specific application will tie into another application, service orientation advocates the concept of exposing IT functionality and data as services the business can use as needed to compose applications that implement business processes. Using standards-based services also lets arbitrary applications communicate with one another without being concerned about the other system’s internal implementation. It’s no surprise that enterprises and IT vendors alike are using SOA as the primary means of solving B2B integration issues.

The business benefits of service-oriented B2B integration over tightly coupled B2B approaches are:

  • Reduce the cost of integration because they have agreed on the interfaces between their systems and businesses in advance — lessening their dependency on complex, expensive, custom integration approaches.

  • Lower the TCO of their heterogeneous systems since standards-based, interoperable systems give businesses a greater choice of vendors and the flexibility to solve specific business needs.

  • Realize a much greater market opportunity rather than relying on partners and suppliers to implement specific, proprietary approaches; vendors can provide solutions that will work in their customers’ environments, enabling them to reach partners that may previously have been inaccessible.

  • Decrease the time to market because they can increasingly depend on their partners’ IT environments to offer interoperable services, so they don’t need to develop proprietary solutions.

SOA provides not just a framework for dealing with short-term B2B integration challenges, but it also gives companies a way to increase their competitiveness in all industries, particularly where margins are slim.

3. Regulatory Compliance

In today’s harsh corporate environment, being an executive or a board member of a public company is not for the faint-of-heart. A whole raft of new laws and rules meant to protect the public, provide transparency in corporate management, facilitate government regulation, and smooth the interactions between businesses and their stakeholders will impact businesses for decades to come. Laws such as Sarbanes-Oxley, the PATRIOT Act, Basel II, the California Privacy Act, Graham-Leach-Bliley, and Health Insurance Portability and Accountability Act (HIPAA) require that corporate managers take full responsibility for their actions (for more information on these laws, see “New Compliance Regulations,” below). If they don’t, they may lose their money or even their freedom.

New Compliance Regulations
Basel II
a.k.a. The New Accord, the International Convergence of Capital Measurement and Capital Standards - A Revised Framework
It represents recommendations by bankers to revise the international standards for measuring the adequacy of a bank’s capital. It was created to promote greater consistency in the banking approach to risk management across national borders.
California Privacy Act Prohibits financial companies from sharing the details of a customer’s financial transactions with third parties without the customer’s permission. It also gives consumers the right to stop companies from sharing their information with associated companies unless they meet certain criteria.
Graham-Leech-Bliley Requires financial institutions to protect their customers’ privacy, including private, personal information. To ensure this protection, all institutions must establish appropriate administrative, technical, and physical safeguards.
Health Insurance Portability and Accountability Act (HIPAA)
a.k.a. The Privacy Rule
Addresses the use and disclosure of individuals’ health information, as well as standards for individuals’ privacy rights to understand and control how their health information is used.
USA PATRIOT Act
a.k.a. The Patriot Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act
Expanded the authority of American law enforcement for the purpose of fighting terrorism in the United States and abroad. Also used to detect and prosecute other potential crimes, such as providing false information on terrorism.
Sarbanes-Oxley Act
a.k.a. Public Company Accounting Reform and Investor Protection Act
Passed in response to a number of major corporate and accounting scandals (e.g., Enron). The Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, which oversees, regulates, inspects, and disciplines accounting firms. It also covers issues such as auditor independence, corporate governance, and enhanced financial disclosure.

In a tough business climate of heightened competition, complex regulations, and constant change, management must be able to set guidelines for the company and have sufficient visibility and control to ensure that employees follow those guidelines. IT is both the most important asset for providing these capabilities to executive management, and the biggest deterrent to that visibility and control due to the complexity, opacity, and inflexibility of the typical IT environment. Thus, SOA provides agility without compromising the visibility and control that companies require of their IT infrastructures.

Regulations and other changes that come from outside the business are fundamentally arbitrary, because legislatures can create or amend them at will for any number of political or economic reasons. Would you bet that the current regulations that apply to your organization are set in stone? Of course not! In fact, you can expect new rules and changes to existing rules, and you can also expect those changes to be inherently unpredictable. Furthermore, global companies must submit to local regulations wherever they do business, adding to the volatility of the regulatory picture. There is no monetary return on investment (ROI) for money spent on regulatory compliance. The only “ROI” that applies is “risk of incarceration.”

4. User Empowerment

Many users will find themselves participating in one or more business processes that they have no control over. The move to service orientation will have subtle but powerful effects for these people. The tools they use to do their jobs — spreadsheets, portals, business applications — may now be part of service-oriented business processes. Such applications focused solely on knowledge-worker productivity can empower the ordinary line-of-business (LOB) user to become a business-process professional. As a result, these tools can use the flexibility of composite applications to implement service-oriented processes.

5. Business Agility

At a fundamental level, one basic business problem affects all the rest. That problem is “inflexibility.” We consider inflexibility to be the “über-problem” of business today. Basically, if companies are flexible enough, they can solve all their other problems, since no problem is beyond the reach of the flexible company. If companies were flexible enough, they could adjust their offerings to changes in customer demand, build new products and services quickly and efficiently, and make use of their people’s talents in an optimal manner to maximize productivity. If companies were flexible enough, their strategies would provide the best possible direction for the future. Fundamentally, flexibility is the key to every organization’s profitability, longevity, and success.

How can a business aim to survive, even in an environment of unpredictable change? The answer is “business agility,” the ability to respond quickly and efficiently to changes in the business environment and to introduce changes to achieve competitive advantage. Companies that can make effective use of a changing environment are better able to compete and thrive in any business climate.

The most important aspect of the business-agility definition is that it has two parts: the ability to respond to change and leveraging change for competitive advantage. The first is the reactive, tactical aspect of business agility. Clearly, the more quickly and efficiently companies can respond to change, the more agile they are. Achieving rapid, efficient response is similar to driving costs out of the business: It’s always a good thing, but over time it has diminishing returns as responses become as fast and efficient as possible. Competitors are also trying to improve their responses to change, so it’s only a matter of time until they catch up with you — or you catch up with them.

The second, proactive half of business agility is by far the more interesting and powerful part of the story. Companies that not only respond to changes but also see them as a way to improve their business often outdistance the competition as they use change to their advantage. Strategic advantages — those that distinguish one company’s value proposition from another’s — can be far more durable than tactical advantages, such as better responsiveness to change.

Competition Through Change

Once companies realize that service orientation has the power to increase competitiveness in the face of today’s ever-changing business environment, there will no longer be any question that service orientation is a critically important business concept.

Jason Bloomberg and Ron Schmelzer are senior analysts and principals at ZapThink, LLC, an advisory firm that focuses on helping organizations leverage their technology to become more agile, competitive, and efficient. Their latest book is Service Orient or Be Doomed! (Wiley, 2006).

 

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