Banker, Baker, Candlestick Maker?

Eric Austvold
Eric Austvold

“Industry applications provide a business process foundation or a set of best practices. A good example is the posting of debits and credits to a general ledger or the processing of payroll calculations. Every company does that, and in many cases off-the-shelf packaged software provides the best-in-class processing for those activities,” he said. “However, there are many processes in a business that can call upon those standard best practices in their custom routines. SOA technologies make that possible, by creating a standards based way to use those processes without changing them to create new extensions,” he said.

SOA-Implementations by industries
SOA-Implementations by industries

And, not only do SOA and industry solutions work well together, he says companies that deploy SOAs first will gain a competitive advantage. SOA will speed up supply chains, promote better communication, and let trading partners operate more flexibly, he says. The race to deploy SOA is on, with 74 percent of companies surveyed by AMR either using it now or planning to evaluate it. Austvold warns that SOA’s greatest shortcoming is its complexity. Some companies lack the information technology (IT) skills to orchestrate the high modularity of SOA systems. With SOA, certain companies or industries are likely to win big, while others may flounder. Here’s what Austvold had to say.

Who are the SOA leaders?

Austvold: Companies with a wide variety of technology components with which they serve their customers. The leading companies are services companies—financial services firms, brokerages, banks, travel and entertainment companies, governments and healthcare firms, for example.

Who are the SOA laggards?

Austvold: Manufacturers. That’s partly because the first thing they need to have in place is a modern enterprise resource planning (ERP) system for production. With that, they reap the benefits of having common processes across the organization behind the firewall. Only after they have ERP can they move ahead to SOA.

If a company has industry-specific software in place, is SOA an easy transition?

Austvold: AMR Research has a model called the escalator model, in which companies get on the escalator and go up. As they go up they implement new functionality that uniquely differentiates how they serve their markets. On the bottom end they don’t have unique functionality but they need software applications and best practices. So they tend to buy enterprise, large-footprint software applications like SAP. Within those the company gets best practices for financial accounting, human capital deployment, production or any number of business processes.

Ten years ago that was enough. But now the market is saturated with enterprise technologies. So the ERP systems that gave companies a competitive and cost advantage have been mitigated by the widescale deployment of the same technology by all the other companies in the market segment. ERP is no longer a differentiator.
So, as those companies move off the escalator they’ve got to move to the next level of innovation. They don’t want to rip out existing, industry-specific functionality. They want to complement it with SOA principles. Remember, SOA isn’t an application. It’s a design principle for next-generation software applications. Companies are creating new SOA processes by which they are going to manage the relationships with all the partners in their trading communities.

Please give an example of how SOA can improve a specific business process.

Austvold: In a request for quotes (RFQ) process, SOA technologies can be used to create new quoting processes that link unstructured data like spreadsheets and e-mail to structured data you find in ERP systems like customer and product info.

Take the way an organization accepts requests RFQs. In the RFQ process using SAP a user might ask, “Can we make X and if we can make X how much will it cost?” SAP can calculate all those things. But the process of managing the RFQ includes other tasks such as formal written responses or offers of price quotes. The user has to decide if he should use Word documents or electronic formats, for instance. All of the traditional RFQ processes involve human capital, which is expensive and variable. SOA offers a way to apply technology to remove the variability in processes while ensuring consistency every time. ERP systems don’t extend to the customer. With SOA and ERP a company can collaborate and exchange information using multiple tools and formats.

Your research shows that “faster and more flexible reconfiguration of business processes” is the No. 1 reason companies are deploying SOA. Can you give an example of that benefit in a consumer packaged goods firm?

Austvold: Take the process of sales and operations planning. A CPG company is about to launch a new toothpaste. Executives have an estimated forecast of how many tubes the company will make for the launch. Along with the product launch it has a promotions plan. The plan must include all the constituents in the company as well as the retail partners, the third-party logistics providers, the promotions planning and advertising partners and so on. A wide network of people has to be on the same page.

With SOA business processes become services. By using a common standard format, all parties who adhere to that format can access the product launch information at any time. With SOA if the CPG makes a change to the launch plan, all the parties who need it get the information.
So, when the toothpaste production forecast changes, the promotions plan, the toothpaste price point and other factors must also change. SOA enables quick notification and lets everyone see that data in context. For instance, if I’m a store manager, I don’t care that the company is making 10 million tubes of toothpaste worldwide, but I do care about how many will be coming into my loading dock in the next 72 hours. SOA gives me context-specific information. On top of that, it shows data specific to promotion planning, for example, so I can see what needs to go into the newspaper flyer on Sunday. SOA technologies can make a CPG company more nimble and flexible.
The overall goal is to be more reactive to the true demands of customers. The companies that can dynamically create new products, ramp them up into the market and reap the most profit are the ones that will win in the future. Leading companies are investing in SOA technologies because they make them more agile in the way they respond to customer demand.

Doesn’t SOA provide a big technical challenge?

Austvold: The No. 1 inhibitor to SOA use and deployment is governance. Companies are trying to answer questions such as, “What should the services look like? How should we design the system? How do we develop it? How do we maintain it? How do we put into production and ensure that it’s scalable?” With SOA all of those things are new challenges for an IT organization. Every company and every industry is facing a learning curve. The other drawback is resistance to change. It’s human nature.

What’s your bottom line on SOA?

Austvold: SOA presents opportunities for fantastic success and spectacular failure. The spectacular failures can happen to companies without the IT discipline to manage a custom development process. Why did packaged applications like SAP take off? Because they are difficult to do. No one wanted to write an ERP system themselves.

Companies such as manufacturers still want packaged applications, but they also want a strategy for SOA, such as the one that SAP has put forth with SAP Enterprise Services Architecture (SAP ESA) and composite applications, SAP xApps. SAP promises to make SOA components easier to use than if the manufacturer writes them from scratch.