Virtual formations



This is a strange time of limbo for the many IT directors and other executives charged with planning their organisation’s IT strategies over the next several years. On the one hand, suppliers, analysts and numerous industry luminaries are again pronouncing that the world is on the cusp of a technology-led business revolution – and this time, it is one that will deliver real, even dramatic paybacks.

It is a credible story, involving web services, frictionless commerce and a new era of cost reduction and improved business agility. But at the same time, budgets holders have every reason to be highly cautious and hold back, even at risk of falling behind. First, the economic conditions are uncertain for all and, for some, are downright dreadful. Across the world, IT budgets have been slashed and innovative projects, however promising, have been frozen or culled.

But perhaps more importantly, only a tiny fraction of those companies that followed the manifesto of the last revolution – the consumer-led Internet revolution – achieved the kind of payback they had expected. In many cases, the promises of dramatic new revenue opportunities, or of reduced costs of sales or fulfilment, turned out to be empty. As one IT director put it: “I like what I’m hearing. But I haven’t made the last lot work yet.”

Because of these concerns, corporate technology suppliers are also taking a cautious approach. Independent analysts may speak of the ‘real’ B2B revolution, whereby the elimination of business friction frees up trillions of dollars that fall straight to bottom line, but suppliers are focusing on less emotive messages.

These messages: First, that, all the failures aside, many of the biggest and best B2B projects have, in fact, produced substantial strategic and financial returns for participants; second, that these returns are achievable by all businesses willing to invest and follow best practice; third, that even greater returns are available to all those willing to extend their use of automated business processes and to involve their business partners; and fourth, that web services technology will ultimately make all of this much easier and cheaper.

The dream

In recent years, business ‘gurus’ such as Michael Hammer, best known for business process reengineering, and John Seely Brown, the chief technologist at Xerox Parc in California, have spoken of the new, and potentially enormous, restructuring of business that technologies such as web services will trigger. But within the IT industry at present, there is little talk of that.

Because of the need to focus on the bottom line, much of the marketing from software and service suppliers has become prosaic: “As a company, we found that the only important investments today are the ones that deliver an impact to the bottom line,” says Mark Hoffman, CEO of B2B management software supplier Commerce One.

Such marketing self-restraint does not come naturally to suppliers, and is probably only temporary. Analyst IDC is predicting a new wave of investment in B2B commerce, web services and integration technologies, and much of it will be on long term, strategic and even speculative projects. Moreover, executives who focus narrowly on the immediate return on investment may miss the importance of the long term, wider business benefits.

As the caution subsides, suppliers will gradually begin to more openly articulate a more ambitious dream: a world where businesses can easily find and choose their suppliers and partners, and tightly integrate their processes. And if circumstances change, they can just as easily, and cheaply, disassemble those links. They will be able to do all of this without major reprogramming, without incurring many costs, and with little business disruption.

This is the world of ‘friction fee’ commerce that has so inspired the gurus and futurists. Paul Strassmann, a former CIO of the US Deptartment of Defense turned economist and author, has calculated that true collaborative commerce could save leading global businesses $2 trillion a year; Forrester Research says that collaborative ebusiness will provide a 15% productivity boost to the US economy over the next decade; the Net Impact study by Stanford University, sponsored by Cisco, finds that many of these productivity improvements have already begun to take effect.

A key word in all of this is ‘process’. The goal of much of the enterprise software investment of the past decade has been to integrate various internal business processes, such as purchasing, so that they can be effectively automated, managed and improved from a single point, even where the process crosses many functions and departments. Now, the goal is to extend out across supply chains, partner networks or ‘ecosystems’.

Several technologies are involved in making this happen. At its core are the big business applications – manufacturing, financial management, human resources, supply chain management and spend management and other vertical applications, many of which are being opened up to partners and customers. Integration and process management tools will play a key role. And, above all, analysts increasingly believe that web services will be the key enabling technology.

The power of web services technology lies not in what it does per se, but in the fact that it should dramatically simplify many of the complex programming tasks that are currently necessary in order for automated relationships to be set up. Wherever two or more applications, business processes, or sets of data need to talk to each other or interoperate, web services will have a role to play.

A web service might be regarded as a business process, or a unit of work or data, that can be easily accessed over a network, probably the Internet, either by a machine or by a person, using a new set of open, Internet-based standards. These standards (such as XML, SOAP, WSDL and UDDI) set out automated techniques for finding that service, for understanding what it is and does, and for managing the whole interaction.

There is already considerable excitement about web services, even among customers. Companies such as Merril Lynch, Tesco and Dresdner Kleinwort Wasserstein have all given ringing public endorsements of the power of the technology.

Web services are clearly a powerful method for solving one of the IT industry’s biggest problems – how to get continued reuse of software components – especially those that are continually changing. With web services, functions or data only need to be held or managed once; every other system just accesses those functions as a service. This has clear implications for, for example, procurement, where catalogues can be held in one centralised location, and accessed by all parties without need for duplication or replication.

Web services are widely expected to play a key role in internal enterprise application integration (EAI). But the real excitement about web services centres on its potential in extended B2B – business-to-business processes, linked over the Internet. At present, extending a business process across several companies requires each member to consult with partners, and probably to amend systems, data formats and even business processes; web services should, ultimately, mean all this is handled by the software and the protocols.

The impact of web services can be seen on just one area of B2B software – buy side e-procurement. Originally, the goal of e-procurement was to reduce the cost of buying by aggregating distributed purchasing. Later, this evolved to become ‘spend management’, and involved some sophisticated sourcing of products and some analytic functions.

Now it has become yet more sophisticated. With the aid of web services, it has become much easier to link into supplier’s systems – such as ERP and even customer relationship management systems – in order to find out what is happening further up the supply chain. In addition, applications such as contract management and financial settlement can be accessed using web services protocols. Data is all held in accessible XML formats. In this way, complete business transactions, involving many systems, can be brought into play where necessary.

How much of this is here now? In practice, very little exists outside the large bespoke systems created by large companies at the height of the ebusiness investment wave – for example, in the more successful and forward-looking private and public e-marketplaces. These are exactly the kinds of systems that, for example, Benchmark Research identified as producing a good return on investment for high-performing companies. But such systems have, however, usually required extensive programming and are, to a certain extent, ‘hard wired’. Changes to business processes or changes of business partner, for example, might cause difficulties. The promise of web services is that the cost of entry will be lower and changes will be much easier.

None of this is easy, and there are still many major technical and business hurdles to be overcome. Among them: security; transaction handling; competing development tools (Microsoft’s .Net v. J2EE); authentication; immature process management techniques and tools; hesitant or late adoption of web services standards by some application vendors; and, above all, cultural barriers to sharing access to mission critical data, software and processes.

But these challenges will be overcome in time. And when they are, substantial savings will be probable, rather than possible. The suppliers may not dare say it right too loudly at present, but in the words of Ted Schadler, an analyst with Forrester Research: “It’s not too early to let the CFO and the CEO know that a new game is afoot. This is a revolution…”

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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