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The problems we
ʼ
re facing
Peter Evans-Greenwood peter@evans-greenwood.comCompanies are engaged in an arms race. For years theyhave been rushing to beat competitors to market withapplications designed to automate a previously manualarea of the business, making them more efficient andthereby creating a competitive advantage.Wal*Mart is the poster child for this approach. As thefirst retailer with an end-to-end logistics solutionWal*Mart slashed operating costs, leveraging this ad-vantage to deliver “Every day low prices” and drasti-cally undercut their competitors
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. Wal*Mart used thiscompetitive position to become the largest retailer in theworld. Dell used a similar strategy in the PC market, pioneering an IT enabled direct-to-customer model al-lowing them to hold a minimum of inventory, drasticallyreducing operating costs. In some cases Dell was able tocreate an environment where customers paid for their orders before Dell paid suppliers, creating, in effect,negative working capital. Dell used this advantage to become the largest PC vendor in the world
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The end of applications
Today, enterprise applications are so successful that it isimpossible to do business without them. The efficienciesthey deliver have irrevocably changed the business envi-ronment, with an industry developing around them arange of vendors providing products to meet most needs.It is even possible to argue that many applications have become a commodity (as Nicholas Carr did in his HBR article “IT Doesn’t Matter”), and in the lastcouple of years we have seen consolidation in the market as larger vendors snap up smaller niche players to round out their product portfolio.This has levelled the playing field, and it's no longer possible to use an application in the same way to createcompetitive advan-tage. Now that appli-cations are ubiquitous,they’re simply part of the fabric of business.Today, how we man-age the operation of a business process is becoming more im- portant that the busi-ness process itself.Marco Iansiti broughtthis into sharp relief through his work atHarvard Business Review when he measured the effi-ciency of deployment of IT, and not cost, and correlatedupper quartile efficiency with upper quartile sales reve-nue growth
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. Efficiently dealing with business excep-tions, optimizing key decisions and ensuring end-to-endconsistency and efficiency will have a greater impactthan replacing an existing application.Wal*Mart's supply chain solution cost billions in today’smoney, a massive investment impacting their entire op-eration. The application created a competitive advantage,and the investment it required prevented competitorsfrom responding quickly with a competing solution. Thenext generation of systems of a similar scope are taking10% of the staff and 10% of the time compared toWal*Mart’s original investment. Wal*Mart’s competitiveadvantage now rests on its buying power, not the level of IT support for its business processes.We are finished the big effort: applications are availablefrom multiple vendors to support the majority of a busi-ness’s supporting functionality. The law of diminishingreturns has taken effect, and owning or creating new ITasset today will not simply confer a competitive advan-tage.Competitive advantage now lives in the gaps betweenour applications. Exception handling is becoming in-creasingly important as good exception handling canhave a dramatic impact on both the bottom- and top-line.If we can deal with stock-outs more efficiently then wecan keep less stock on hand and operate a leaner supplychain. Improving how we determine financial adequacyallows us to hold lower capital reserves, freeing up cashthat we can put to other more productive uses. Extendingour value-chain beyond the confines of our organisationto include partners, suppliers and channels, allows us tooptimize end-to-end processes. Providing joined-up support for our mortgage productmodel allows us to putthe model directly inthe hands of our clients,letting them configuretheir own, personal,home loan.
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Charles Fishman ,
The Wal*Mart Effect
, Penguin Press, ISBN: 15942007692 Steven Holzner, How Dell Does It, McGraw-Hill, ISBN: 0072262540
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Reference
U.S. software sales in billions of dollars
Source: INPUT
Filling in the gaps & extending ourreach
Service-oriented architecture (SOA) is a new approachto enterprise software supported by a broad range of tools and techniques across the industry, promising todramatically lower the cost of integration and enable amore granular approach to IT. From humble beginningsas a light weight approach to integration, driven by theneeds to quickly connect systems in complex and de-manding IT environments, SOA has grown into a revolu-tion similar that of client-server and the impact it had onhow we design and build applications. After the Internet became established the web brought about the new waysof working, and now SOA is redefining how we plan anddeliver IT.SOA allows us to align new IT assets (services) with the business activities they are intended to support, letting usfocus our IT investment on the high value differentiating business activities (those that a disproportionate impacton our competitive advantage) that live between applica-tions while leveraging low cost commodity functionality provided by applications where appropriate. It also pro-vides a holistic view of IT enabled business functional-ity, one that spans applications and extends beyond the bricks and mortar of traditional back-office operations of enterprise software to include field operations, client, partners and even competitors. Rather than being forcedto treat each business function and requirement as equaland delivering solutions in application-sized chunks,SOA provides us with a holistic view of the business andallows us to focus our attention and energy where it willhave the most impact.In the back office we’re using composite applications tofill gaps between existing IT assets to provide users witha single consistent view into enterprise data and func-tionality. This allows them to focus on the task at handrather than mediating between siloed applications, actingas a manual integration point. The more holistic view of business functionality SOA provides enables us to stringtogether the individual activities and create true end-to-end processes. Combined, these approaches allow us todeliver direct cost, efficiency and quality benefits to the business by providing a consistent level of automationacross the enterprise.The light weight and low cost integration provided bySOA lets us to expand IT operations out beyond the tra-ditional bricks and mortar of the back-office, bringingfield operations, partners and even (in some cases) com- petitors into our IT environment. Mobility solutions areintegrating team collaboration and back-office function-ality to deliver innovative solutions directly into thefield. We’re all familiar with signing for a package onthe device most delivery people carry, sending the deliv-ery receipt directly to the back-office. Airlines are usingmobility solutions to provide maintenance teams withseamless IT support for turning aircraft around at thegate, connecting team actions with back-end schedulingand planning systems. Police departments are providingtheir people in the field with devices that that allow themto access back-end application functionality from the patrol car.In many industries the sensor networks and the commu-nications network to support them are finally affordable,allowing us to instrument our operations to degree uni-maginable only a few years ago. For example, Wiscon-sin Public Service (WPS) (a little discussed mid-westernutility power) deployed 1.2 million meters to collectintelligence directly from the field, pulling over 60 mil-lion data points a day. WPS has leveraged this data tooptimize operations and is now moving to become thelowest cost operator of a grid in North America.And finally, the (technical) ease of partner integration iscausing many companies to rethink how they managetheir operations. Wal*Mart was the supply chain leader in an application-centric world, causing Target to re-
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spond by developing a new approach. They did this byhanding responsibility for much of their supply chainover to their vendors, incentivizing the vendors to be-come very good at keeping their products on the shelves.Home Depot took the idea even further and steppedaround the barrier of the supply chain to hand not onlythe supply chain, but all the stocking, store layout and pricing of the product category directly to many of their the vendors, providing the vendors with a direct feed onsales. Home Depot has significantly reduced the cost of what they do while increasing the number of sales per item in their stores above the level from when they did itthemselves.
The boundaryless environment
The Internet has connected systems in number and scaleunimaginable and outside anything known before. Thisis leading us into a new and different direction, awayfrom the monolithic systems of the past.We saw this effect first in the web, and we can see mi-grating to the enterprise today under the guise of SOA.The destruction of boundaries between departments ishaving a dramatic effect on our businesses as the oldconcepts of inside and outside no longer make sense.Previously we were forced to restrict ourselves to whatwas happening within the walls of our organisation. Si-loed approaches to enterprise IT created an environmentwhere we could only see the data we generated, wecould only influence the business decisions and proc-esses we own, and we were responsible for only those business activities within our own organization.The boundaryless environment is fundamentally chang-ing these assumptions and our zones of visibility, influ-ence and responsibility are changing. We have visibilityacross the entire value chain, as we share what was once private data with a customers, partners and suppliers. Wecan now negotiate and collaborate, in real time, with our partners and suppliers (and even their partners, suppliers,and so on further across the value chain) to influencetheir actions. At the same time our sphere of responsibil-ity is shrinking, as we pass more and more of our busi-ness directly into the hands of our partners and custom-ers.SOA enables us to create a boundaryless environment,eroding walls between departments and organisationsand bringing the exception rich, differentiating activitiesinto sharp focus. This provides a wealth of opportunitiesto create new value propositions for companies byautomating and then optimising of these differentiatingactivities, with the potential to create a step change inthe market—a sustained competitive advantage.The advantage that IT can provide has moved from indi-vidual applications, and now depends on successfullycombining a suite of applications to deliver more effi-cient end-to-end processes. A company’s ability to inno-vate and build a competitive advantage rests on its abil-ity to support and optimize these differentiating excep-tion handling activities; with the significant intellectualinvestment this requires creating a barrier to competi-tion.
The challenge: scaleable computing
The shift in focus away from applications, and to theexception rich business activities that live between them,is impossible to support with an application centric ap- proach. Applications force us to treat all business proc-esses and activities as equal, spreading our investmentevenly.The next step-change in IT requires us to find ways tosupport the activities that live between existing applica-tions. Conventional approaches have reached their limitsand we need to do something different if we want tocontinue to move forward.Consider a financial adequacy solution for a major bank.Today, teams of analysts slave over spreadsheets to cre-ate what are effectively intelligent guesses as to the banks’ overnight financial position and obligations. SOAmakes it possible to look across the boundaryless envi-ronment, integrating company, partner and market datain support of a more accurate and timely financial ade-quacy calculation.A second example is the automation and optimization of the end-to-end supply chain. Existing supply chain solu-tions are strongly siloed into planning and event man-agement solutions, with little support for business excep-tion handling. SOA allows us to pull data from planningand event management and from departments and part-ners across the boundaryless environment to provideworkers with the right data, at the most appropriate time,to facilitate the best decision and resolve the problem inan efficient manner.Despite recent advances, key differentiating exceptionhandling activities remain firmly in the domain of em- ployees and the extended teams they function within.The current technology stack has succeeded in removinga great deal of make-work from our employees’ day-to-day lives, but automating the complex, trial-and-error processes that we rely on them for is beyond the capa- bilities of our existing technology stack.We, people, are very flexible decision makers, capableof finding creative solutions in uncertain environments, but we do have limitations. Our relatively slow “thinkingspeed” (compared to computers) and the low number of options we can consider at once (typically somewhere between four and six) restricts us to creating solutionsthat are acceptable in the local context. We find a solu-tion that works for us, rather than the best possible solu-tion.Human involvement—the requirement to put employeesinside transaction streams—is the new limiting factor.Our limited capacity to processes data and consider op-tions is prevents us from capitalising on the opportuni-ties unlocked by the boundaryless environment.SOA has enabled us to deliver a consistent level of automation across the business and drive down costs.However, it hasn’t provided us with the tools to attack more complex problems, to automate the business ex-ception resolution and complex decisioning that we cur-rently rely on people for.
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