The problems weʼre facing

Peter Evans-Greenwood
peter@evans-greenwood.com
Companies are engaged in an arms race. For years they
have been rushing to beat competitors to market with
applications designed to automate a previously manual
area of the business, making them more efficient and
thereby creating a competitive advantage.
Wal*Mart is the poster child for this approach. As the
first retailer with an end-to-end logistics solution
Wal*Mart slashed operating costs, leveraging this ad-
vantage to deliver “Every day low prices” and drasti-
cally undercut their competitors
1
. Wal*Mart used this
competitive position to become the largest retailer in the
world. 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, drastically
reducing operating costs. In some cases Dell was able to
create 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
2
.
The end of applications
Today, enterprise applications are so successful that it is
impossible to do business without them. The efficiencies
they deliver have irrevocably changed the business envi-
ronment, with an industry developing around them a
range 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 last couple 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 create
competitive 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 brought
this into sharp relief
through his work at
Harvard Business Review when he measured the effi-
ciency of deployment of IT, and not cost, and correlated
upper quartile efficiency with upper quartile sales reve-
nue growth
3
. Efficiently dealing with business excep-
tions, optimizing key decisions and ensuring end-to-end
consistency and efficiency will have a greater impact
than replacing an existing application.
Wal*Mart's supply chain solution cost billions in today’s
money, a massive investment impacting their entire op-
eration. The application created a competitive advantage,
and the investment it required prevented competitors
from responding quickly with a competing solution. The
next generation of systems of a similar scope are taking
10% of the staff and 10% of the time compared to
Wal*Mart’s original investment. Wal*Mart’s competitive
advantage now rests on its buying power, not the level of
IT support for its business processes.
We are finished the big effort: applications are available
from multiple vendors to support the majority of a busi-
ness’s supporting functionality. The law of diminishing
returns has taken effect, and owning or creating new IT
asset today will not simply confer a competitive advan-
tage.
Competitive advantage now lives in the gaps between
our applications. Exception handling is becoming in-
creasingly important as good exception handling can
have a dramatic impact on both the bottom- and top-line.
If we can deal with stock-outs more efficiently then we
can keep less stock on hand and operate a leaner supply
chain. Improving how we determine financial adequacy
allows us to hold lower capital reserves, freeing up cash
that we can put to other more productive uses. Extending
our value-chain beyond the confines of our organisation
to include partners, suppliers and channels, allows us to
optimize end-to-end
processes. Providing
joined-up support for
our mortgage product
model allows us to put
the model directly in
the hands of our clients,
letting them configure
their own, personal,
home loan.
Page 1
1 Charles Fishman , The Wal*Mart Effect, Penguin Press, ISBN: 1594200769
2 Steven Holzner, How Dell Does It, McGraw-Hill, ISBN: 0072262540
3 Reference
U.S. software sales in billions of dollars
Source: INPUT
Filling in the gaps & extending our
reach
Service-oriented architecture (SOA) is a new approach
to enterprise software supported by a broad range of
tools and techniques across the industry, promising to
dramatically lower the cost of integration and enable a
more granular approach to IT. From humble beginnings
as a light weight approach to integration, driven by the
needs 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 on
how we design and build applications. After the Internet
became established the web brought about the new ways
of working, and now SOA is redefining how we plan and
deliver IT.
SOA allows us to align new IT assets (services) with the
business activities they are intended to support, letting us
focus our IT investment on the high value differentiating
business activities (those that a disproportionate impact
on 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 forced
to treat each business function and requirement as equal
and delivering solutions in application-sized chunks,
SOA provides us with a holistic view of the business and
allows us to focus our attention and energy where it will
have the most impact.
In the back office we’re using composite applications to
fill gaps between existing IT assets to provide users with
a single consistent view into enterprise data and func-
tionality. This allows them to focus on the task at hand
rather than mediating between siloed applications, acting
as a manual integration point. The more holistic view of
business functionality SOA provides enables us to string
together the individual activities and create true end-to-
end processes. Combined, these approaches allow us to
deliver direct cost, efficiency and quality benefits to the
business by providing a consistent level of automation
across the enterprise.
The light weight and low cost integration provided by
SOA lets us to expand IT operations out beyond the tra-
ditional bricks and mortar of the back-office, bringing
field operations, partners and even (in some cases) com-
petitors into our IT environment. Mobility solutions are
integrating team collaboration and back-office function-
ality to deliver innovative solutions directly into the
field. We’re all familiar with signing for a package on
the device most delivery people carry, sending the deliv-
ery receipt directly to the back-office. Airlines are using
mobility solutions to provide maintenance teams with
seamless IT support for turning aircraft around at the
gate, connecting team actions with back-end scheduling
and planning systems. Police departments are providing
their people in the field with devices that that allow them
to 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-western
utility power) deployed 1.2 million meters to collect
intelligence directly from the field, pulling over 60 mil-
lion data points a day. WPS has leveraged this data to
optimize operations and is now moving to become the
lowest cost operator of a grid in North America.
And finally, the (technical) ease of partner integration is
causing many companies to rethink how they manage
their operations. Wal*Mart was the supply chain leader
in an application-centric world, causing Target to re-
Page 2
!"#$%$&'(
!! LxLendlna Lhe reach of our
back omce
!! Þrovldlna ñeld workers wlLh
[olned-up l1 supporL
)*+,"-(.*&/"-0,(
!! Leveraae Lechnoloales such as
8llu and smarL appllances Lo
lnsLrumenL operauons
)"1/2-*(2,(2()*-3$4*(5(
!2,6789,(
!! Lnable end-Lo-end processes
-! Lower error raLes
-! lncreased LhrouahpuL
!! Lower user workload
-! no more swlvel-chalr
lnLearauon
-! Þrovldes Lhe rlahL daLa, aL Lhe
rlahL ume, presenLed Lo
enable users Lo make beuer
declslons
:2-&+*-(;+&*<-2="+(
!! Sales and operauonal daLa
!! 8esponslblllLv for end-Lo-end
buslness processes
!! laclllues and oLher asseLs
Process & Information Integration
Platform
Application Services
UI UI UI
Field Operations Back Office Partners
Platform
Application Services
UI UI UI
Platforms
Application Services
UI UI UI
spond by developing a new approach. They did this by
handing responsibility for much of their supply chain
over 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 stepped
around the barrier of the supply chain to hand not only
the 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 on
sales. 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 it
themselves.
The boundaryless environment
The Internet has connected systems in number and scale
unimaginable and outside anything known before. This
is leading us into a new and different direction, away
from 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 is
having a dramatic effect on our businesses as the old
concepts of inside and outside no longer make sense.
Previously we were forced to restrict ourselves to what
was happening within the walls of our organisation. Si-
loed approaches to enterprise IT created an environment
where we could only see the data we generated, we
could 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 visibility
across the entire value chain, as we share what was once
private data with a customers, partners and suppliers. We
can 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 influence
their 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 organisations
and bringing the exception rich, differentiating activities
into sharp focus. This provides a wealth of opportunities
to create new value propositions for companies by
automating and then optimising of these differentiating
activities, with the potential to create a step change in
the market—a sustained competitive advantage.
The advantage that IT can provide has moved from indi-
vidual applications, and now depends on successfully
combining 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 intellectual
investment this requires creating a barrier to competi-
tion.
The challenge: scaleable computing
The shift in focus away from applications, and to the
exception 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 investment
evenly.
The next step-change in IT requires us to find ways to
support the activities that live between existing applica-
tions. Conventional approaches have reached their limits
and we need to do something different if we want to
continue 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. SOA
makes it possible to look across the boundaryless envi-
ronment, integrating company, partner and market data
in 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 planning
and event management and from departments and part-
ners across the boundaryless environment to provide
workers with the right data, at the most appropriate time,
to facilitate the best decision and resolve the problem in
an efficient manner.
Despite recent advances, key differentiating exception
handling activities remain firmly in the domain of em-
ployees and the extended teams they function within.
The current technology stack has succeeded in removing
a 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, capable
of finding creative solutions in uncertain environments,
but we do have limitations. Our relatively slow “thinking
speed” (compared to computers) and the low number of
options we can consider at once (typically somewhere
between four and six) restricts us to creating solutions
that 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 employees
inside 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.
Page 3
If we want to deliver the step change promised
then we need to remove employees from opera-
tional roles within the transaction stream,
where simple human limitations are holding us
back. We need to automate these key differenti-
ating activities. Automation allows us to apply
the much greater scale of information technol-
ogy—it's ability to consider vastly more op-
tions, rules, and interactions, and look across
the boundaryless environment—to create glob-
ally optional solutions. Employees move from
an operational role, to a supervisory and opti-
misation role where they can leverage their
creativity to enrich these differentiating activi-
ties and create a sustained competitive advan-
tage.
This is beyond the capability of conventional
technologies. The programming languages,
development approaches, and rules and busi-
ness process engines we currently use in the
enterprise are mature products with well under-
stood limitations. Aside from theoretical argu-
ments, the simple fact that they haven't been
used to support these differentiating activities
can be seen as evidence that they is beyond
their capabilities. The potential benefits of, for
example, automating financial adequacy analy-
sis and calculations would have resulted in the
development a financial adequacy solution it were pos-
sible.
While the current technology stack places us at the lead-
ing edge of the step change, delivering the change will
require something new.
Technology
We must answer a difficult question: what technologies,
tools and techniques can we use to capture and automate
these differentiating, exception handling business activi-
ties?
Human flexibility is part of our ability to tolerate con-
flicting goals and rules while working toward a solution.
For example, work to capture and automate government
legislation
4
with rules engines quickly found contradic-
tions (otherwise known as loopholes) in the legislation’s
business rules. While the government was sure of the
legislations intended effect, conflicts and inconsistencies
within the act meant that no one, not even the people
responsible for drafting the act, could be sure of the ac-
tual effect. However, government found the act workable
as the people responsible for interpreting it were per-
fectly capable of working through the contradictions and
inconsistencies as they sought solutions that met the
legislation’s original intent.
Conventional enterprise technologies—such as Java or
C#—represent bottom up technical languages. These
languages are designed to help us craft a set of instruc-
tions for computer hardware. This makes capturing
complex business logic difficult, if not impossible, as
we’re forced to map the trial-and-error processes hu-
mans use to navigate complex and inconsistent environ-
ments into computer instructions. Capturing the incon-
sistencies and conflicts, and the tribal knowledge, is a
combinational problem beyond the capabilities of a tra-
ditional programming language. There are simply too
many options, alternatives and exceptions to consider.
More recent technologies—such as rules and business
process engines, and domain specific languages—repre-
sent an attempt to create business friendly languages
which simplify this knowledge capture process. These
approaches have seen some success, and they do have a
much more business-like appearance, but both are still
firmly founded in the technical traditions. The conflicts
and inconsistencies inherent in complex business logic,
the business logic at the heart of a company’s ability to
differentiate, are still treated as exceptions rather than as
part of the course.
Technologies based on a bottom-up approach cannot
successfully deal with these inconsistencies, making
them unsuitable as tools for capturing and automating
the differentiating activities that are the key to unlocking
the potential of the boundaryless environment.
An alternative approach
A more fruitful approach is to work top down: working
from the business to technology. Businesses rely on net-
works of people to plan and manage their operation. We
should try to understand how people deliberate and col-
laborate, how they work through the conflicts and incon-
sistencies, and use that as the basis for our technology.
Page 4
4 Serot and Kowalski's work on the British Nationality Act in the early eighties. http://doi.acm.org/10.1145/5689.5920
We also need to integrate failure—the error in trial-and-
error central to our flexibility as decision makers—into
the core of our approaches.
A case in point is the development of NASAs develop-
ment to support fault-finding in the space shuttle. NASA
started a project in the 80s to automate a manual fault
finding process
5
. The process relied on an engineer and
shelf full of binders at mission control, but NASA
thought that it would be more efficient to reify the
knowledge in a rules engine, enabling astronauts to carry
it with them on the shuttle. The project encountered
problems when the rules engine failed, incapable of sup-
porting the non-linear, exception rich, fault finding proc-
esses. Searching for inspiration they found Michael
Bratman's Belief, Desire, Intention (BDI) theory of hu-
man action
6
. Using this basic understanding of how a
human would solve the fault finding problem, pulled
from outside computer science, the team created a “BDI
agent tool” called PRS
7
(the Procedural Reasoning Sys-
tem). PRS provides a scenario-based approach to captur-
ing and automating knowledge that mirrors human de-
liberation, breaking the problem up to create a decision
making process that mimics the way a person would
navigate their way through the conflicts. Using this tool
the team was able to successfully deliver a solution that
was beyond the reach of conventional programming lan-
guages or rules engines.
Conventional enterprise technologies have an ideal view
of the world, where all business logic can be represented
with clean business processes or idealized predicate
rules. This breaks down in the real world where rules
conflict and the exceptions in a business processes are
often more important than the body of the business proc-
esses itself. Automating the differentiating activities that
are holding us back requires us to find new technologies
and tools that allow us to mimic human deliberations
which are the soul of a business.
The tipping point
We’re rapidly arriving at a tipping point as our existing
technology platform matures, bring key differentiating
activities into focus where we can apply new ideas and
concepts to capture and automate their complex deci-
sioning processes while, at the same time, we’re faced
with the reality that between 30% to 50% of the people
that have been employed by industry in the last 30 years
are retiring in the next three to five.
A range of suitable technologies are already available,
from BDI agents mentioned above, through machine
learning, neural networks to multi-agent systems which
allow us to mimic how people communicate. These
technologies allow us to leverage ideas from economics
and complex systems theory to create applications that
exhibit the richness and capability of markets and social
groups.
Many of these technologies have long individual track
records, where they have successfully solved problems
beyond the reach of more conventional approaches.
However, successful proof-of-concepts and prototypes
have faced difficulties when moved to production. The
problem has been that each technology lives apart from
the conventional enterprise technology stack. Past at-
tempts at commercialization have tried to push these
technologies into the enterprise, solutions looking for a
problem and failing to meet enterprise requirements for
performance, reliability and maintainability.
A more pragmatic approach is to identify the problem
that need to be solved and then pull, rather than push, in
the technologies required to solve the problem. Initially
working with small, isolated problems, we will work our
way toward more ambitious and pervasive challenges.
This adoption process can be broken into three general
phases
8
: role-based automation, the creation of teams
and developing markets.
Role-based automation
First we capture the business process within a single
differentiating activity, moving from the locally accept-
able solutions generate by employees to locally optimal
solutions that automation enables. Automation results in
increased speed and accuracy, delivering an immediate
benefit to the business by lowering operational costs,
increasing throughput and lowering the number of er-
rors.
Employees move from an operational role, where they
are integrated into the transaction stream, to supervisory
role where they are responsible for oversight and opti-
mization of key exception management business logic.
Role-based automation is widely applicable, with com-
mon examples across a diverse range of industry sectors
for financial service, supply chain and logistics, manu-
facturing through to the public sector. Activities such as
real-time fraud detection, supply chain exception man-
agement, automated loan approvals and policy manage-
Page 5
5 http://www.ai.sri.com/~prs/rcs.html
6 Michael Bratman, Intentions, Plans and Practical Reason, CSLI Publications, ISBN: 1-57586-192-5
7 http://www.ai.sri.com/~prs/
8 First laid out in the article Moving Beyond Composite Applications to the Next Generation of Application Development: Automating Exception-Rich Business Processes by Peter
Evans-Greenwood and Mark Stason, published in the May/June 2006 issue of Business Integration Journal.
ment within the public sector are similar to the scenario-
based approach to problem solving that NASA saw
when developing the fault-finding solution for the space
shuttle. Fraud detection is generally a process of testing
transactions to see if they are part of any known fraud
scenarios. Supply chain management and loan approvals
both use a scenario based approach to problem solving,
starting from the optimal solution (“Can I replace the
product from excess inventory?” “Does the customer
qualify for the home loan without any supporting docu-
mentation?”). Policy management requires us to use a
scenario based approach resolving inconsistencies in
legislation, using the context of the problem to deter-
mine which scenario to use in navigating the legislation
While SOA enables us to break down barriers between
applications, departments and organisations to better
support users and create a more efficient work environ-
ment, role-based automation allows us to tackle more
complex problems and augment users, allowing them to
support more sophisticated business logic.
The creation of teams
Next we focus on capturing the collaboration and nego-
tiation between distinct roles to create virtual teams
within our organisation, allowing our automated roles to
look across its social network to negotiate with peers in
the creation globally optimal solutions within an enter-
prise. This builds on the role-based automation from the
previous phase, expanding our view beyond that of a
single role to include the role's social content—its team.
Where role-based automation allowed us to capture and
then optimize the business logic within a role (treating
other roles as simple services on the network), a team
allows us to consider a group of roles as a whole and
capture the negotiations between teams members as part
of the solution. This allows a role to influence other
roles as they reach a decision, simply delegating work or
even agreeing for both roles to change their current plans
in order to resolve an issue.
Developing markets
Finally we can network the teams and roles together,
leveraging market-based approaches to form automated
networks of roles, departments or even separate compa-
nies that dynamically share and manage resources. This
allows us to expand our view of a role's social network
beyond the team to support boundaryless business proc-
esses. Rather than requiring a single, central, planning
authority, we can leverage ideas from economics to cre-
ate flexible markets where roles gather to manage re-
sources.
The boundaryless enter-
prise
How will breaking down barriers between departments
and organizations affect an enterprise? What will the
impact be on the role of applications?
We can expect the emergence of the boundaryless envi-
ronment to trigger a dramatic change in the organiza-
tions we work for. The change in how we engage IT—a
shift from managing assets to capabilities—must have a
direct effect on ITs role in business.
IT as a facilitator
Many IT departments were created in a time when en-
gaging IT was a major engineering undertaking. Deliver-
ing large applications required large departments led by
teams of skilled technologists. Companies created cen-
tralized technology groups responsible for capturing
business requirements, defining applications, setting
standards and ensuring quality of delivered projects, and
technology was seen as something apart from the rest of
the business. While this was appropriate for an
application-centric enterprise, we need a new model for
the boundaryless enterprise.
The economics of IT has changed as it has become more
diffuse. IT has spread out from the centralised depart-
ment of old to find a place in every department. It’s
common for the CFO to be responsible for desktop sup-
port, with departments deploying their own portals, web
sites and collaboration tools.
More recently Web 2.0 technologies such as wikis and
blogs have been sprouting across the enterprise. Tech-
nology is no longer seen as something special, some-
thing to be maintained by a separate department, but as a
simple tool to be purchased where and as needed. The
current generation of enterprise applications are the last
technologies to live in the world of centralized IT, as the
increasing use of partnerships and service-based ap-
Page 6
proaches is gradually reducing the need for a separate
technology focused department.
We can see a point in five to ten years time when cen-
tralised IT departments will have ceased to exist
9
. Soft-
ware development will have moved to the fringes of the
organisation, where development teams are focused on
delivering and maintaining key differentiating services
that are two valuable to move outside the business; how-
ever the teams will be using a mixture of business fo-
cused tools to deliver business mashups or support the
development of complex business logic, rather than Java
or C# which are common today. Software architecture to
continue as a function, but it will have moved from a
standardization and engineering development role. Its
new role will be as a facilitator working with the busi-
ness to understand the problem at hand, determine the
required technology footprint, and then co-ordinate the
planning and delivery of the heterogeneous capabilities
that comprise the boundaryless enterprise.
Master planning the boundaryless en-
terprise
We need a new organizing principle to manage the
boundaryless enterprise. Or existing practices are based
on managing major assets, and are no longer suitable.
The Paris Guide to IT Architecture (reference) points the
way by establishing three guiding principles:

Work with the business landscape, moving beyond our
own boundaries to consider the assets, capabilities and
constraints of the organizations we interact with.

Establish capable and flexible infrastructure

Actively manage the process—a commitment to ongo-
ing monitoring and improvement
Together theses principles provide us with a framework
to define a new model for planning and delivering the
next generation of IT support. However, as with cities,
different planning models suit different circumstances.
Paris exemplifies one town planning model, as do Mil-
ton Keynes, Levittown, Chandigarh, and Canberra. The
tension in all master-planning is that which exists be-
tween planners imposing structure (zoning) while allow-
ing inhabitants (us) the freedom to change and imprint
our surroundings. Too much master-planning stifles ex-
pression and diversity, too little results in shanty-towns.
This aspect of the analogy seems to hold for SOA and
the boundaryless environment. Enterprise architecture
provides infrastructure and standard connectivity, the
business uses this platform to craft individual services
and to string services together.
Working from the three principles we can create a sim-
ple hub and spoke planning model that aligns well with
business desire to innovate at the customer coal-face
while, at the same time, ensuring compliance and effi-
ciency in common operations
10
. The hub represents our
core enterprise data. Spokes are the major services radi-
ating from the hub—the core applications that form the
backbone of an enterprise. The rim is the coal face
where we need to deliver business functionality to cli-
ents, employees and partners.
The wheel provides us with a simple model for our ef-
forts in city planning, allowing us to strike an appropri-
ate balance between innovation and chaos. Core enter-
prise processes, the spokes, are relatively static and con-
sistent across the enterprise. We rely on them for com-
pliance and to ensure the smooth operation of our or-
ganization. Innovation is relegated to the rim, where we
interact with clients, partners and even competitors. The
framework provided by the hub and spokes is allows us
to manage innovation by providing us with a clear un-
derstanding of how much flexibility we can allow before
cores processes begin to bend and break.
Making the business case
The boundaryless environment is making asset based
return on investment (ROI) calculations that we’ve re-
lied on to date irrelevant, as the next generation of solu-
tions will leverage a range of technologies, combining
them with non-technological elements to deliver focused
capabilities.
From asset to capability
Solutions will have more similarities with the business
mash-ups
11
that are currently emerging, rather than the
applications of old. Our financial adequacy solution
from before is a good example, as it pulls in a range of
existing services, new and old as well as from in and
outside an organisation, combining them with new tech-
nologies to deliver a tightly focused capability. The cost
of the final solution cannot be determined by simply
tallying up the capital investment required to deliver the
mash-up since its functionality relies on a range of tech-
nology as well as functionality provided by other serv-
ices, some of which are sourced externally.
Page 7
9 The Economist, Great expectations: The changing role of IT in business, The Economist Intelligent Unit
10 The use of a spoked-wheel metaphore is explored more extensivly by Steve G. Jones in his book Enterprise SOA Adoption Strategies, InfoQ, ISBN: 978-1-84728-398-6.
11 Andy Mulholland, Chris S. Thomas, Paul Kurchina, Mashup Corporations: The End of Business As Usual, Evolved Technologist Press, ISBN: 0978921801
We can see this as part of a broader trend to move from
asset to activity based accounting, part of the broader
trend to activity-based models of business we see in the
business community. Rather than focusing on the assets
owned by a business, we’re starting to focus on the
product or services it provides and the capabilities re-
quired too support them. The groundwork for this ap-
proach was laid out in the Strategy Maps by Robert S.
Kaplan and David P. Norton, which expanded their work
on measuring the efficiency of business from The Bal-
anced Scorecard.
In this new model cost, capability, risk and solution
footprint form the basis of establishing a business case.
A solution is measured on its ability to deliver a clearly
defined capability that adds value to one (or more) busi-
ness activities. The capabilities delivered will address
real and pressing needs. Can I dramatically reduce the
amount of stock in my supply chain? Can I reduce my
capital reserves while maintaining financial adequacy?
How do I create an effective 4PL market to deal with the
last mile?
The tight connection between this approach and how we
measure and understand the business provides a basis for
prioritizing initiatives, something many companies
struggle with. Is it more important for customer interac-
tion processes to be standardized across all business
units; or for vendor processes to be? Is it more important
to provide flexibility and room for innovation in the
product development, or to drive the creation of products
that are consistent, uniform and low cost to create and
distribute? None of these are easy questions to answer,
but by explicitly connection the investment we are con-
sidering we manage to greatly simplify the challenge.
Applications, but not as we know them
But if we are beginning to focus on capabilities, how
will we justify the sort of major investment required to
develop, deliver and maintain a complex enterprise ap-
plication? How can we continue to support the core en-
terprise functions that are the bread and butter of today’s
current enterprise application?
Applications are capable and efficient at supporting the
business functionality within their scope. It’s not un-
common for older businesses to have twenty or thirty
year old applications that are still successfully support-
ing the business, processing huge volumes of transac-
tions beyond their original design specifications. Their
problem is that they support yesterday’s business re-
quirements, not today’s, and updating the 10% of busi-
ness logic that has changed can often necessitate com-
pletely redeveloping the application.
SOA has step into the gap, as the more granular ap-
proach to IT it enable allows us to break applications
into their logical components and consider each compo-
nent separately. The smaller size of these components
naturally lends itself to a capability based approach, as
each component is focused on supporting a single busi-
ness activity such as managing customer data or pricing
transactions.
The undifferentiated nature of many of these compo-
nents sees them on the path to becoming services a com-
pany uses, rather than an asset is owns. If there is little
strategic value in the functionality, then most business
would prefer to account for the functionality per use
rather than as a capital investment.
For example, existing billing systems are heavily com-
moditized, and a billing solution that allows clients to
retain control of core pricing functionality (the only dif-
ferentiating activity in this part of the value chain) could
be used as the basis of a "billing and collections serv-
ice". Client companies submit transactions (with pre-
computed prices) to the service, which then generates
the invoice, sends it (email or paper), collects the cash,
and taking a percentage of the top before sending the
cash to the client.
We’re already starting to see the development of some of
these services. Amazon is leading the charge by opening
up their capabilities and offering them on the open mar-
ket under Amazon Services
12
. Starting with simple
shopping functionality, they are now branching out to
offer more traditional enterprise business functions such
as storage
13
and, now, fulfilment
14
.
Applications as major IT assets will cease to exist, with
their functionality provided by a suite of services. Capa-
bilities central to a companies ability to differenti-
ate—the 10% of business functionality that will make a
difference—will be supported in-house where a com-
pany have tightly control over its creation and delivery.
Less important capabilities, many of which are currently
support by in house enterprise applications, will be
moved outside the enterprise.
Conclusions
Information technology has come a long way since its
birth over forty years ago and technology has matured to
the point that IT is no longer something “different” in
the business. The application centric approach to IT that
we’ve successfully used to date is reaching the end of its
useful life, and new need to look for new approaches
that can take us forward into the future. We've finished
the big effort: applications are available from multiple
vendors to support the majority of a business’ context
functionality. The law of diminishing returns is taking
effect, and owning or creating new IT asset today is not
going to deliver a sustained competitive advantage.
The recent emergence of service-oriented architecture is
allowing us to reinvent enterprise IT, destroying the bar-
Page 8
12 http://www.amazonservices.com/
13 http://www.amazon.com/s3/
14 http://www.amazonservices.com/fulfillment/
riers between departments and organisations to create a
boundaryless environment. This is having an immediate
impact on our business’s areas of visibility, influence
and responsibility. Some forward thinking companies are
leveraging this to reorganise their businesses and deliver
dramatic increases in efficiency.
This has created a boundaryless environment, providing
a wealth of data and interactions whose latent capability
is capable of delivering a step change to the business.
However, these capabilities are beyond the reach of the
mature applications and integration technologies we
currently use, and continue to rely on people to support
the non-linear, trial-and-error deliberation processes that
are becoming core to a company’s ability to differenti-
ate. This has created a new limitation: the people we
continue to rely on for the complex deliberation and ex-
ception management that is at the heart of a company’s
ability to differentiate. To move forward we need to
move up the value chain and attack more complex prob-
lems. If we can capture and automate key, high value,
deliberations and negotiations then a company can use
this to build a sustained competitive advantage. Deliver-
ing solutions that capture, automate and optimise these
deliberations and negotiations will enable a company to
differentiate. The investment required to develop this
complex business logic provides the barrier to competi-
tion.
Solving these complex problems is beyond the capabili-
ties of the current generation of technology. Remove this
limitation and we unlock the potential to deliver a step-
change to the business. Delivering this step change re-
quires us to find new tools and techniques capable of
capturing and automating the complex, non-linear delib-
erations that we, as people, find easy, and to change the
way we engage with IT.
Page 9