ServiceTechMag.com > Archive > Issue XLIV: October - November 2010 > Using Extended Enterprise Services to Avoid the IT Pitfalls from the 90s
Henrik Hvid Jensen

Henrik Hvid Jensen

Biography

Henrik Hvid Jensen is a leading SOA guru in Denmark. His Scandinavian book "Service Oriented Architetcture - Integration as a competitive advantage" and blogs have been used as inspiration in many projects. He has taught on SOA, Events Driven Architecture and Semantic Web as External Associate Professor at Copenhagen University. He is today Project Director at Devoteam Consulting. Henrik holds a Masters in Computer Science from Copenhagen University and a Bachelor in International Trading from Copenhagen Business School.

Contributions

rss  subscribe to this author

Bookmarks



Using Extended Enterprise Services to Avoid the IT Pitfalls from the 90s

Published: October 07, 2010 • SOA Magazine Issue XLIV
 

Introduction

Companies are ready to start benefitting from the third stage of commercial use of the Internet. The third stage offers a new channel for the Business Partner, and has the potential to change the competitive landscape of an industry. This stage is often called the Integration Stage. In this stage companies can take the lead by understanding and benefitting from the internet's full potential. This stage will change the internet from primarily supplying content through a homepage to primarily supplying automatic business functionality as Extended Enterprise services directly in the internal tools Business Partner's employees' use. However, many companies do not understand the potential consequence of their competitive situation and leave it to the IT-department to utilise the technology. The IT-department has kidnapped the stages external potential and has focused its potential on internal efficiency purposes, keeping it captured in the machine room.


The "Stages" of the Internet

The Communication Stage

This stage is about transforming communication with customers and increasing the size of the markets you can reach. Users can go online and interact. All that is required is a browser and internet access on the user's side and a simple homepage on the company's side.


The Interaction Stage

This is the stage most companies have reached today. It typically involves a self-service homepage and periodic data transfer with important business partners. The purpose of most web solutions is to present a web page for the end user. Typically, someone is sitting at the other end with a browser entering an order on the company's homepage using a copy-paste integration, where the employees of your business partner copy information from their internal system and paste it into your homepage. This manual "integration" is expensive, ineffective and scales badly. Every time an unnecessary manual step is introduced in the process, the risk of delays, typing errors or misinterpretations increase.

You typically gather requirements in this stage by interviewing a group of business partners and ask them: "How do you want us to make the interaction on our homepage?" The result is a one-size fits all solution, with a homepage flow that aims to address as many partners' business flow as possible - but probably does not meet a single partner's flow completely.

The interaction on the internet today is not designed for direct business transactions between machines. Its purpose is to be used by humans.


From "One-Size-Fits-All' to Tailor-Made

If human-to-computer interaction could be changed to a computer-to-computer interaction, data capture could be part of an automatic business process.

As relevant information already exists electronically and the majority of computers are connected via the internet, it is possible to avoid entering orders on a homepage. Instead functionality and information should be integrated directly into the internal systems of business partners, exactly where it's needed in their business process; thereby tailored to each business partner's specific needs. Business partners should have the opportunity to not use a one size fits all homepage for their typical interactions with the company (Example 1).



When a municipality handled cases regarding immigrants, they gathered information from The Danish Immigration Service via telephone, fax or e-mail.

In order to make a more efficient process at both ends they launched two initiatives:


  • A homepage where the case officer is able to search for relevant information
  • A Web service that the municipalities can integrate directly in their internal case handling tools.

Both initiatives had a significant impact on the process and especially the Web service was attractive as it made immigrant information easily available in the municipalities' internal system - exactly where the case officer needed it, tailored to the need of the municipality.



Example 1 – Immigration service places information at the fingertips of the case officer


The Integration Stage

This stage enables external real time functionality supplied as Extended Enterprise services to be integrated directly by the business partners into their systems, tailored to the business partner's internal need. Some companies already use the internet to enable automatic connections with business partners to exchange data. These connections are often built one by one with significant human interaction between the parties.

The integration stage eases the process, enabling a more automatic and reusable way of making integrations. The integration stage is about integrating functionality in real time, not transferring data periodically between systems - which is the typical integration method used today.


The IT Pitfalls of the 90s

Today we have a situation similar to the mid 90's, where companies had to adapt to the internet by creating a homepage. These homepages were often developed by visionary IT specialists with limited knowledge and considerations of the business strategy. Many business people primarily perceived homepages as a technical exercise and continued to disregard them as an important part of their channel strategy up through the 90's.

Consequently, many companies began to see more visionary competitors, who understood the potential of homepages in their channel mix early on, allowing them to overtake market shares. Today most companies have homepages as an integrated element in their channel strategy and a common discussion topic at any level in an enterprise.

However, many companies are again falling into the pitfall of the 90´s. They see the changes of the internet as a technical discipline, where more visionary competitors understand, that the internet again is adding a new channel to the channel strategy. This channel will have higher competitive implication than a well-designed homepage ever had.


Extended Enterprise Services

In many companies, the responsibility of optimizing the use of services belongs to the IT-department. The purpose of IT is typically to support the internal business processes with efficient and cost effective IT-systems.

Many companies have therefore adopted a service-oriented architecture (SOA) strategy with a business case focusing on the internal effectiveness that SOA holds, where business agility, cost efficiency and faster reaction to market changes are the main focus areas. However, few companies are considering the competitive advantages Extended Enterprise services can bring. The advantages of this approach will change the competitive landscape in an industry.

An Extended Enterprise service is a service that a business partner can integrate directly into their own system, thereby enabling each individual business partner to "tailor" the interaction with the company exactly to their needs.

The challenge in the 2010's is to ensure that the understanding of the service's potential is not kidnapped by the IT-department. The business should understand the potential of using services to improve their competitiveness in the market and there is a definite advantage to win by entering early and setting the scene before competitors.

Requirement gathering in the integration stage is done by asking individual business partner: "What information and functionality do you need in your business process to interact with the company?" The gathered requirements should result in coarse grained Extended Enterprise services that contain all necessary information and functionalities. Each individual business partner can then pick and choose exactly the information and functionality he needs, tailoring the interaction to his business processes.

Extended Enterprise services will have a higher impact on the competitiveness in an industry than a well-designed homepage has ever had.


Inside-Out View

One of the reasons why business people haven't seen the potential yet, is because they typically have an inside-out view on the interaction with the business partner. "How much does contact through a specific channel cost me?" and they are trying to direct the business partner to the cheapest channel (Figure 1). An inside-out view will not identify any significant difference between an Extended Enterprise service and a homepage, as transactions done on a homepage typically result in an "internal use" of the same Extended Enterprise service as the business partner's use.



Figure 1 – Typical contact cost per channel type


Outside-In Approach

If they instead took an outside-in approach "How much does it cost my business partner to interact with me through a specific channel?" The answer can be quite different! (Example 2)



A leading Danish ingredients company had established that they received many orders via fax, and handling the paperwork was a significant cost for them. They interviewed the customers in order to understand how to design a self- service homepage, where orders were automatically sent to their backend-system.

After they launched the homepage, they realised that many customers continued to use the fax and not the well-designed homepage. The ingredients company had established that they received many orders via fax, and handling the paperwork was a significant cost for them. They interviewed the customers in order to understand how to design a self- service homepage, where orders were automatically sent to their backend-system.

After they launched the homepage, they realised that many customers continued to use the fax and not the well-designed homepage. The ingredients company learned that many faxes were sent automatically by the customers IT-system. If these customers used the homepage instead of faxes it would increase the cost of doing business with the company.

However if the ingredients company offered Extended Enterprise Services their Business Partner could integrate real time ingredients functionality directly in their own systems. This would enable the business partner to streamline their process and thereby making it cheaper for the Business Partner to interact with the company.



Example 2 – Company looking inside-out


There is an additional upfront cost for the business partner to integrate the Extended Enterprise service into their own system, but the benefit of having tailor-made unbroken processes will, in most cases, result in a positive business case (Example 3).



Registration of rights (deed, mortgages etc.) to properties is a crucial part of the Danish society and is handled by the Danish courts. In September 2009 the registration process was changed from a completely paper -based system to a fully digital system.

Now the only way to register rights is to send a digitally signed XML-document in a service transaction. Extended Enterprise Services were offered to the Danish courts' business partners - and most financial institutions as well as some cadastral companies, real estate agent and lawyers have integrated their daily systems directly with the services.

The court also offered a homepage where business partners, who decided not to integrate the court's services in their own systems, could do the registration. The homepage uses the same Extended Enterprise Services as external business partners' system.

After the system's first year, it is the experience that companies integrating the courts services directly in their system and thereby enabling their employees to work on unbroken processes in their own environment, have a significantly lower cost structure than companies using the homepage. The current experience shows that registrations handled in their own system cost only 10-20 % compared to handling the registration on the "one size fits all" homepage.

The total business case for the Business Partners shows efficiency gains of €20-30 millions per year.



Example 3 – Using services to register rights saves € 20-30 millions per year


The Enemy of External focused SOA: Short-Sightedness

An important reason for the insufficient outside-in approach is the short-sighted measurement departments often have to accept. They are provided with a certain budget and if the order handling department is able to identify a potential for saving labor cost by producing a well-designed homepage, they will focus their budget on that. The order handling department already gains the internal cost benefits with the homepage, but it might be the sales department that gains the benefit of additional sales, when the business partner understands that doing business using the companies' Extended Enterprise service is more cost-effective than doing business with competitors. But a short -sighted focus on the order department's own budget can result in the project being stopped at the homepage resulting in the Extended Enterprise services that could improve sales not being implemented. Similar to public organizations that are forced to cut costs, they will focus on their own budgets and not the potential efficiency improvements for citizens and enterprises.

Building a homepage and Extended Enterprise services as one project have significant cost benefits, as the homepage typically uses Enterprise Services that are the foundation for the Extended Enterprise services. In any homepage project methodology there should be a task for identifying how to produce similar information and functionality offered on the homepage as an Extended Enterprise service. Decisions on offering and making use of Extended Enterprise service is a cross departmental exercise that requires top management's involvement.


Selling the Services

It is not sufficient to produce the Extended Enterprise services. In order to move from idea to reality, four different 'sales' initiatives have to be launched.

Internal Project Decision Board

The business case will focus on benefits like:

  • Increasing the competitive strength
  • Reducing cost of handling customer interactions

Senior Employees who have Contact with Business Partners

These parties have to convince their counterpart of the potential for using the services. These contacts are often between business focused people with limited technical understanding, therefore proper sales material needs to be produced. The employees have to understand why they should use their limited time with the business partner to discuss Extended Enterprise services instead of other topics. The sales initiative to these employees will focus on:

  • Benefits for the company
  • How to explain the benefits for the business partner
  • The benefit for this employee (more sales) (Tell me how you are measured and I will know your working behavior)

The Business Partner

The partner itself and the messages to him will focus on benefits like:

  • Employees working on tailor made unbroken processes in the internal safe and controlled environment
  • Cost reduction per interaction
  • The typical penetration effort will be to run a pilot project with well-established business partners, and use their gained benefits to illustrate the potential business case that will convince additional business partners to enter into the integration stage.

The Business Partner's Project Decision Board

This group also has to be convinced about the business case of integrating the Extended Enterprise services into their internal systems. The message will focus on benefits like:

  • Reusable integration effort. A critical aspect of a successful homepage project is user friendliness. Likewise, a critical aspect of an Extended Enterprise service project is that the integration is cost effective to step into and cost effective to leave again. This will reduce the risk on the business partner's side. For instance, the use of the service may not require significant investment, as the business partner should be able to reuse his knowledge and infrastructure investment in other Extended Enterprise service projects. The Business Partner should not experience that he through the integration investment binds himself too hard to the company. An efficient integration will reduce the risk on the business partner's side.
  • Business case based on similar companies' experience.
  • Confidence: The enterprise offering Extended Enterprise service has to understand that in this aspect of the business they have similarities to a software supplier and the enterprise has to make sure that the business partner is confident with their handling of new versions, security, governance, testing etc. The adaption chasm will diminish concurrently with more and more companies gaining experience with Extended Enterprise service, similar to the adaption of using homepages to interact with business partners. Most companies are confident doing business using a homepage; this will also be the situation with services.

Conclusion

Enterprises that only see service-oriented architecture as an exercise for the IT department completely miss the dimension whereby services can be used to increase the enterprise external competitive strength. This channel is critical for the enterprise's future competitive situation and Extended Enterprise Services should have its natural position in the channel strategy.

Extended Enterprise services offer real user friendliness. Business partners remain in their well-known business system and have external business functionality available in unbroken business processes exactly where it makes most sense.

Extended Enterprise services make it easier and less costly to do business with the company. If companies continue the philosophy from the 90's, they will lose market shares to competitors, who spare their business partner of unnecessary troubles by having services as a natural place in their channel strategy.

When strengthening the enterprise's e-business strategy, many only consider adding new functionality to their homepage. It is necessary to have a competitive homepage, however it is not sufficient. Enterprises need to understand that the functionality and information offered on their homepage should also be available as Extended Enterprise services that can be integrated directly in business partners systems. Concepts like Web services and XML have to be natural terms at the CO-level just like homepages, e-mails and mouse clicks are today.

It takes time for the business to learn to think in abstract terms such as services rather than concrete screenshots, but the business that best understands the potential of this new channel, will change the competitive landscape in their industry.

The potential of the integration stage should not remain in the IT machine room, it has to be set free from the IT-department and used in the open environment, strengthening the competitive position of the enterprise.

Today nobody understands how it has ever been possible to work without e-mails. In 10 years nobody understands how it has ever been possible to do business without Extended Enterprise services.