Impact of service orientation at the business level.

INTRODUCTION

The business environment is undergoing a dramatic change. Competition from traditional and nontraditional players, emergence of a multitude of delivery channels, a plethora of regulatory and governmental compliance requirements, and demands for more flexibility and agility, to name a few, influence business design and execution. Growth is returning to the agenda of CEOs, and most CEOs expect their enterprises to reach revenue growth by becoming more responsive. (1)

The demand for innovation, flexibility, and shorter time to market for new products and the desire to create new revenue sources has led to rethinking industry structures. Novel ideas, promoting the deconstruction (unbundling) of the corporation and enabling it to focus on its core business competencies, find increasingly broad acceptance. (2) Such deconstruction of the corporation naturally led to the emergence of collaborating ecosystems. (3) The manufacturing industry discovered the power of specialization and collaboration first and took it to new heights, closely followed by the electronics industry. (4) The services industry, perhaps as a backlash against unbridled consolidation, is now actively pursuing deconstruction. An IT (information technology) professional would observe that corporations are naturally becoming componentized.

What is described here is a business that is able to recognize change as it is occurring and react appropriately, ahead of the competition, and keep pace with the demands of its customers, value-net partners, and employees alike. In trying to achieve this state, the business will need to leverage technology to the fullest. We call such a business an "on demand business." Fundamentally, becoming an on demand business is equivalent to achieving total business flexibility. Two important enablers contribute to the realization by an enterprise of this vision of on demand--componentization and service orientation.

The notion of componentization allows an enterprise to deconstruct, analyze, and then reconstruct into value nets, in which partnerships with customers and suppliers operate in a network supported by real-time information flows and integrated IT systems. The process of deconstruction/reconstruction is realized through business components, which correspond to distinct business functions. In the on demand environment, the component-based firm links its components efficiently and seamlessly both internally and across the firm's boundaries with best-of-breed components provided by external partners.

Nonetheless, componentization by itself is not sufficient. Interactions between business components need to be seamlessly and tightly integrated across the value net. The need for flexibility across the value net requires that the component network be flexible; that is, the enterprise can "in-source" an outsourced component and vice versa; replace, on demand, a current partner with a different partner; change the terms of the contract between the two components, and so on.

The key to seamless integration between business components is service orientation. As defined above, each business component serves a unique purpose and provides one or more business services for consumption by other business components. The component that consumes a business service offered by another business component is oblivious to how the provider creates the business service. Service interactions between business components are governed by business-level agreements and contracts, which cover items such as cost structures, service levels, and so on. The information technologies that evolved in support of service orientation, first Web services and then service-oriented architecture (SOA), (5,6) have proven to be well-suited to business transformation in the enterprise.

The rest of the paper is organized as follows. In the next section, "The service-oriented enterprise," we describe our vision of an enterprise able to deal with the challenges of the emerging business environment. We discuss the changes necessary to bring about the service-oriented enterprise, namely componentization, evolving the business ecosystem, changing business processes, and addressing organizational issues. In the following section, "An on demand scenario," we provide a case study that illustrates how componentization and service orientation can enable an enterprise to react quickly to a marketplace need. Then, in the section "IBM activities," we briefly describe the way IBM helps businesses to implement service-oriented enterprises. We conclude the paper with a brief summary.

THE SERVICE-ORIENTED ENTERPRISE

Given the need for the deconstruction of enterprises, we now look at how such transformations can take place. Businesses need to focus on their core business competencies that differentiate them from their competitors. A strategic analysis could then reveal which capabilities are best done within and which can be outsourced to a partner to the advantage of both parties. Thus, businesses should view themselves as a federation of capabilities that collaborate with other enterprises within a business "ecosystem." In other words, the deconstruction transforms the enterprise into a collection of smaller and autonomous business components that interact with similar entities within the business ecosystem. This transformation is referred to as the componentization of the business.

The componentization of the business leads to an increase in the number of interacting elements, which means that more effort is invested in logistics. Complexity can be controlled by designing business functions as well-defined services. Thus we see the emergence of the service-oriented enterprise.

Transforming an enterprise into a service-oriented enterprise involves business challenges that are more difficult to overcome than the technological challenges associated with implementing an SOA infrastructure. The concept of a service-oriented business is simple to understand; the realization is complex and requires research and innovation in many areas. In this section we describe some of the steps required to realize a service-oriented enterprise.

We first examine the componentization of a business by describing the reasons for componentization and the properties of a component-based business. Then we discuss a number of other business transformations required for creating a service-oriented enterprise: evolving the business ecosystem, changes to business processes, and addressing organizational issues.

Componentization

Figure 1 is a very simple illustration of a component-based business and its ability to adapt to business needs through changes to its component structure. The component structure is illustrated as a network of interconnecting components. As shown in Figure 1, the component structure can be changed to accommodate the "plugging-in" of new components, the "unplugging" of other components (possibly those peripheral to the main business) and setting up replacement components from a business partner, and the integration of a component from a business partner. Thus a component-based business is, by nature, very flexible.

[FIGURE 1 OMITTED]

This illustration assumes that the business components can he plugged in or unplugged with relative ease. Because a business component involves people, resources, technology, and know-how, the addition or removal of components has implications for all these aspects of the business component. It is easily inferred that these will not be achievable tasks unless the structure of the business component, its responsibilities, and its collaboration with other components through well-defined interfaces are understood and clearly defined. In other words, a business component is a part of an enterprise that has the potential to operate independently--even as a separate company, or as part of another company.

Such flexibility in reshaping the way the business operates requires a highly structured, architectural view of the business. An analogy can be made with IT. IT architecture proved to be successful in providing an analytical and decision-making framework for a sequence of new …