Service-Oriented Architecture on Enterprise IT Spending Radar

Companies are aggressively adopting Web services, the applications and systems that enable business collaboration via the Internet, says Boston-based analyst firm Yankee Group. It surveyed decision makers at 437 U.S. enterprises and found that 75 percent plan large investments in such service-oriented architectures (SOA) over the next 12 months, says Phil Fersht, business applications group director for Yankee.
He says that despite stagnation in IT investments over the last four years, many companies have spent to deploy Web services and will continue to do so. “Web services have reduced costs and improved profits,” Fersht says.
Yankee Group’s “2004 Enterprise Web Service Study” provides a snapshot of where companies stand now in terms of SOA integration and where they are heading. Fersht spoke to SAP INFO about the study and about the trend toward enterprise SOAs.

What were major findings of the study?

Fersht: The major finding was that the adoption of Web services has been more aggressive than we originally thought. And the plans to incorporate Web services over the next 12 months are also more aggressive than we had envisaged. There had been stagnation of IT investment budgets over the last four years. Now we are seeing the freeing up of resources. A lot of investment has been going into Web services. For example, in the health care industry there have been developers downloading toolkits, training themselves, and doing internal Web services project work. This hadn’t shown up in many external spending statistics because the spending had been on internal resources. Now we see knowledge work, training and education. That was the No. 1 surprise finding of the study, how advanced companies have become in Web services.

Another area that was eye-opening was that 65 percent of the decision makers we spoke to are prepared to rip and replace what they have to get a more service-oriented architecture within the organization. Some technology and applications are getting quite old. People we surveyed say it’s time to replace their old systems. They are saying that just because they spent $5 million six years ago doesn’t mean they will keep investing in the same platform. They say they will invest resources in something new and less rigid.

In the past, Web services standards have been confusing. How has that changed?

Fersht: Now there is more understanding about Web services, including standards such as extensible markup language (XML), Web services description language (WSDL) and simple object access protocol (SOAP).

Also the benefits of Web services are better understood at senior level than they were in the past. For example, you can go to a CFO and explain that a project that requires 25 developers now will only require six developers in 12 months, because of the introduction of Web services standards. The use of such standards could decrease cost by $300,000 per year or more, for instance. The business case is accelerated because of the better understanding of Web services and Web services standards.

What results do companies report from the implementation of Web services?

The companies that already adopted Web services are seeing significant benefits. When we asked companies that had already implemented Web services where the main benefits had come from, 79 percent said that Web services enhance their ability to collaborate with external parties.When we asked companies with Web services investments planned in the next 12 months, they said their primary motive is to address security issues and create better efficiencies across business processes. And, when we asked companies that have already adopted Web services, they said their actualities are slightly different than their original motives. The ability to collaborate with external partners is something that we see as vital for revenue growth in the next five years. It has reduced costs and improved profits. We asked the decision makers in what time period they expect Web services to reap a return on investment. Seventy-one percent expect to see their money returned to them within two years. So expectations are high. It’s not like ERP was five or six years ago, where companies thought it would take 10 years to reap rewards through their total cost of investment. With Web services companies get actual benefits from both the top and bottom line.

Your study found government to be a leader in Web services deployment. Why?

Fersht: Quite simple. We’ve been through four years of difficult recession and technology investment stagnation. Because of that the government has been one of the most active sectors of investment, largely because it stands out against other sectors, which have been impacted by business and economic climate conditions.

The government sector has internal mandates in areas like security, e-business and e-commerce. They are investing in their infrastructures as well.
The health care industry is also investing in Web services. On average, 76 percent of organizations expect significant external investment in Web services this year. We expect manufacturing and financial services to lead the way this year.

Do any industries lag?

Fersht: We looked at a cross section of investments and found that government spending is slowing down now. We think that’s because they’ve invested a lot already. But I wouldn’t say there’s a major laggard. The pharmaceutical industry is a little behind, as is education. Industries that are too reliant on in-house vendors are struggling a little bit, as are industries with complex IT systems. Of the companies that have already deployed Web services, the biggest laggard is manufacturing, because the recession has really impacted them. And the other laggard is wireless telecom, but we expect to see more investment from them proportionately than from any other vertical over the next 12 months. Web services have clear benefits for transporting data over wireless networks.

What are the biggest challenges companies are facing with the implementation of Web services?

Fersht: Cost is still the No. 1 problem. There’s also a problem with too many standards and too many stakeholders trying to define standards. And there’s still a problem with collective technical requirements.

Do you have any specific tips for a company considering a deployment of Web services?

Fersht: You need to understand how to communicate with your senior executives to get this done. That’s often the hardest thing, communicating at the senior level, explaining the business benefits of what you’re doing, why you’re doing it, why money should be invested now, and what benefits you’re going to achieve, including increased security, decrease in development time and cost, increased reuse of code and better external collaboration. You need to communicate the opportunities to improve revenues as well as decrease costs. You must build a business case. Also, you should spend some time looking at a three-year road map to bring Web services across the enterprise value chain and outside of the corporate firewall.

Do you have a warning for a company considering deployment of Web services?

Fersht: I wouldn’t invest too much money at once, as there is no silver bullet. Ask the following questions before evaluating Web services options:

  • How do I reduce unnecessary development costs?
  • How can I improve automation between systems?
  • How can I improve my business’s profitability?
  • How can I address security issues?
  • How can I leverage integration standards to manage my customers, suppliers and employees more effectively?

My top three warnings would be:

  1. Select suppliers that can best deliver a solution that addresses your specific business and technology needs. Don’t just pick the best technology solutions, but also examine their ability to deliver service and support, and make sure they have staff dedicated to you who have experience designing business processes in your industry.
  2. Do background research on your supplier before committing. Ensure the supplier is financially stable and has a track record of deploying the right SOA you need. Talk to other IT professionals in other companies. Read industry research on their performance and get involved with the standards bodies and user groups before making firm commitments.
  3. Address budget issues.Make sure the necessary funds are available to cover all aspects of Web-services migration issues before proceeding. Pay particular attention to testing and training costs.
Sarah Z. Sleeper
Sarah Z. Sleeper