SOA can help midmarket companies increase profitability and grow in an agile, nimble fashion. It can help them be better able to respond to demand, Jacobson says. And while he notes that upper midmarket firms, those with revenues from $250 million to $1 billion, are more likely to deploy SOA than lower midmarket firms – those with revenue from $50 million to $250 million – or small firms, he also says that savvy companies of all sizes can reap rewards. He lists SOA benefits including the ability to accelerate the pace of software deployments and upgrades, and improved interoperability with third-party applications. Jacobson also says that SOA can help a company insulate itself from technology obsolescence. And it can contribute to lowering the total cost of technology ownership over time. SAP INFO online spoke with Jacobson about why SOA can be a boon to midsize and small companies.
How should a small or midsize company approach SOA?
Jacobson: SOA should be approached as a project, not an application. It’s architectural. It can involve one application or multiple applications. A company which is considering SOA needs to look at it as a journey. AMR Research advocates that for small to midsize organizations, it’s incumbent upon the vendors to educate the market and explain what SOA is and then position how they support it. Vendors have to help them understand how SOA gives them a way to configure, orchestrate and exploit new business processes without having to make a sizeable IT investment or disrupt their business.
Please give us an example of how SOA could benefit a small company?
Jacobson: Let’s take the example of a water ski manufacturer, one who gets its raw materials from suppliers and sells its products through retailers. As well, let’s assume it has an online sales catalog. A company like this could construct a new business process to enable sales staff to offer discounts and get approval from managers. For instance, a sales rep in the field could use Web services or a SOA application to pull data from several backend systems and instantly present a discount to a retailer from within a Web portal. He could also initiate a transaction that would alert the manager to the need to approve a sales discount. In a case like this, SOA lets the company be agile.
Is an SOA investment too costly for small companies?
Jacobson: A company has to consider how it can use Web services to expose data from legacy applications or construct new business processes that support profitable growth and make the business more nimble. For some small businesses it’s a trickle down effect. For example, maybe I’m a small company and I want to participate in the value chain being facilitated by a brand owner or large OEM in my industry. Being a supplier may require an investment to construct a SOA in order to connect myself to that value chain and profitably respond to demand. Some large companies have invested so much money to be able to understand and forecast customer demand. They expect their suppliers to be in synch with capturing that demand. And the reality is that small and midsize companies have just a short window to respond to the new demand.
What drives a small or midsize company to invest in SOA?
Jacobson: You see it in companies that have a tremendous investment in legacy data sources. They can’t afford a ‘rip and replace,’ but they want to upgrade and get a new user interface or a new way of getting visibility into data. It’s a company that wants to construct new business processes to remain competitive. Or it can be a company that believes it already has a best in class IT approach and so it doesn’t want to spend money on brand new applications, but still wants to be able to reconfigure, orchestrate, and deploy new business processes. Also, it’s often companies that want to involve their trading partners in certain business processes.
What types of processes are smaller companies likely to SOA-enable?
Jacobson: Well, discrete manufacturers are likely to use it for communication with suppliers and to make data visible through portals. Their first use of SOA could be as simple as inventory replenishment. It could also be more elaborate, like creating a comprehensive portal that gives suppliers visibility into current inventory levels and workflow processes to orchestrate the supply chain.
Do small companies have the same goals with SOA as large companies?
Jacobson: Smaller companies may have a goal to access best in class functionality for an industry, but unlike a larger company they may not have the IT staff or organizational wherewithal to deal with compiling an architecture of best-of-breed functionality. They may turn to SOA to support their ability to scale rapidly for profitable growth. And they may be driven by the goal of lowering total cost of ownership (TCO). SOA can help them get visibility into legacy data sources and orchestrate and deploy processes that help them cut down IT costs, or just manage or sustain applications. But from a forward-looking perspective SOA may enable them to defray costs down the line by averting a costly upgrade.
Is it difficult for small companies to define total cost of ownership?
Jacobson: TCO is an amorphous term that software vendors bandy about. Many times the methodologies used to determine TCO are a bit shaky. Some look at headcount alone as a TCO measurement. Others look strictly at maintenance and upgrades. But for small companies, TCO may not be a priority. At a very small company, 50 to 100 people for instance, where there might be two or three guys in the IT department and there may also be the accounts payable clerk or the office manager, those guys don’t necessarily think about the long-term TCO of applications. They just want to know their applications are running. But when you get to the upper midmarket, about $500 million in revenue, the IT staff may be more specialized. Those companies are likely to have staff who have worked on large-scale projects. For them TCO is more than just application maintenance. They know how much time or money is spent on bug fixing or simple maintenance and include that in TCO measurements.
What is the biggest challenge for small companies deploying SOA?
Jacobson: The biggest challenge is an educational hurdle. Companies need to get past the notion that when they invest in SOA that they are buying a new ‘capability.’ It’s an investment to drive increased agility and efficiency – not to mention collaboration. In some cases they will simply put in a hub or a bus that can fit across multiple applications and help orchestrate transactions from different data sources. So, for instance, if I have a CRM application that is separate from my inventory and shipping applications and separate from billing and routing, I can use SOA to create real-time visibility into customer orders. That can help me raise my efficiency but may not be a dramatic change to my process. As well, companies always worry about the costs and security of any new application, system or process.
How does SOA affect companies with a centralized ERP solution in place?
Jacobson: Say I’m a company with an existing ERP application running on a very old piece of infrastructure that doesn’t scale. I can use SOA to leverage that data source. I can construct new transactions and maintain that data source or I can put a more elaborate ERP application on top of the old one and use the old one as a database or hub. Most ERP vendors provide the capabilities to support SOA. Frankly if you’re an ERP provider and you don’t support SOA, your time is limited.
What’s your advice for small companies considering SOA?
Jacobson: First of all, small and midsize companies need to examine costs closely. They should be aware of high-priced time and materials engagements from consultants and integrators. They need to make sure that the TCO analysis given applies specifically to their company. And finally, they should always keep in mind: SOA is an evolution and a project, not a big bang. It can help them grow profitably and grow in an agile, nimble fashion.