What Business Executives Must Know About SOA
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Cognizant White Paper
What Business Executives Must Know
About SOA
Accelerate M&A, Integrate Partners, Enhance Performance
Service-oriented architecture is the latest IT industry buzzword. But it's one of the few
that many CEOs, CFOs, and other executives must now understand and act upon if their
companies are to compete in the rest of this decade.
Executive Summary stay ahead of competitors -- built a corporate
computing environment that is flexible and
Imagine a major bank that could acquire and robust enough to enable it to offer new products
merge the systems of bank after bank with its own and services quickly and without excess hassle or
in days or weeks, not in months (and sometimes expense. And, importantly, this environment
years) as it typically takes. Wouldn’t that bank have enables customers to create their own applications
a significant competitive advantage – particularly by “mashing up” services that it offers. Wouldn’t
if it could cross-sell financial products online to its this company have a huge advantage over its
fast-increasing customer competition? It certainly would. That company is
SOA will soon separate the base just hours after eTrade, an early adopter of SOA, which is now
leaders from the laggards completing each M&A looking to harness the power of its customers to
transaction? Wells Fargo generate both cost savings as well as productivity
in a number of technology- & Co., a $500 billion
gains.
dependent industries. (assets) U.S. bank and
the world’s 29th most Wells Fargo, CCC and eTrade have more in common
profitable public company, is trying to be that bank. than ambitious growth plans and strong reliance
Now consider an industry leader in the auto-repair on information technology. They and an increasing
industry that realized increasing market share number of other companies have adopted a
region by region required linking its computer relatively new approach to building and buying
systems with those of its agents, car repair shops, information systems -- a new “technology
appraisal firms and other parties with which it architecture,” in the arcane vernacular of the
does business to eliminate costs, speed services computer industry. That architecture is known as
and reduce waste and fraud. That company, CCC service-oriented architecture, or SOA. You most
Information Services, Inc., is going down the path likely have heard about SOA but probably have
of integrating data, messages and documenta- disregarded it as one more hyped acronym from
tion with its partners using the Internet to bring which many others have come (ERP, CRM, EAI,
efficiencies throughout the claims management SCM, PLM, etc.). But to regard SOA the same way
value chain. Or alternatively, think about an could put your company at risk.
Internet financial services company -- which to
white paperExecutives outside the IT department may say The Rise of SOA
this is all well and nice. But they may also wonder
why they need to know about SOA. If SOA is an To understand why SOA is such a beneficial -- and
architectural approach for building and buying radical change -- in the way organizations manage
information systems, shouldn’t it remain in the IT, one must understand the traditional approaches
domain of the managers charged with building to IT that SOA seeks to replace. For more than 40
and buying computer systems? In an issue of CIO years, companies have been building, buying and
Magazine 2006, an industry expert stated “Don’t managing computer systems largely in a way that
talk to the business about SOA because the makes it difficult (and in some cases impossible)
business doesn’t care.” to reuse system components and save their
technologists from building nearly everything
We believe this advice is wrong -- in fact, seriously from scratch.
wrong. The reason business executives must
become knowledgeable about SOA -- although The pieces of their infrastructure -- the accounts
certainly not at a technical level -- is that their receivable system, order fulfillment system, ERP
companies are not likely to fund SOA initiatives system, sales system,
unless top management is on board. As well, by and so on -- are like The truth is that the computer
understanding how the benefits of SOA accrue over the pieces of the systems of large companies
time, top managers won’t force SOA initiatives to aforementioned
consist of applications software
generate quick returns that in most cases are not fictional car. None
possible. of them can be packages and in-house-built
updated easily with custom systems that were
In this paper, we treat the topic of SOA solely a much-needed new constructed as integrated,
from the perspective of the top management feature or group of
team, not the computer room. We discuss why
monolithic systems, each of
features. Doing so
SOA has become an issue only recently and how it requires replacing which is difficult to untangle.
will drive dramatic changes in the way companies the whole accounts
improve their business operations. We explain receivable system, ordering system or ERP system.
how SOA will help them restructure their own
operations much more quickly, and those of com- The truth is that the computer systems of large
panies they acquire. And we explore how SOA will companies consist of applications software
let them collaborate far more extensively and packages and in-house-built custom systems that
economically with other parties in their demand were constructed as integrated, monolithic
and supply chains -- systems, each of which is difficult to untangle.
suppliers, distributors, Changing one piece of a purchasing or accounts
Imagine an automobile dealers and customers. payable system would require changes in many
industry in which the internal We will also go beyond other pieces of the software – changes that could
take months or even years for the programmers
workings of every car were making predictions to
and system analysts to accomplish. The result
so closely integrated that you showing how SOA has was that companies have been steadily increasing
already changed the way
couldn’t replace pieces of the a number of companies their spending on information technology over
car –– a handle on the door, a do all the above. Finally, the last 30 years, to where it has become 50% of
U.S. companies’ capital budget today. To be sure,
part to the engine, a pipe on we explain what senior
a significant part of this spending increase is
the exhaust system, and so on. business executives
aimed at wholesale system replacement -- when
must do to get their
Essentially, that describes technologists moving system components were no longer sufficient to
the IT infrastructure of toward SOA, including support the business. Imagine having to buy a
whole new subsystem of an automobile (the
most large companies. how to deal with the
quite natural opposition whole door, engine, exhaust system, etc.) -- or
they may face by adopt- even the whole car -- simply because one small
ing a whole new way of running the IT function. part no longer worked. Consumers would be forced
And we’ll discuss all this while sparing you the to spend four, five, six times or more on automo-
technical details that aren’t important to under- biles over their driving life than they currently do.
standing the business rationale of SOA. But the soaring cost of IT is not the only reason
that companies are forced to rethink their whole
approach to designing, building and buying
2 white paperinformation systems. The other major force has update their systems much faster, and to weave
been the need to update those systems much their operations and systems with those of their
faster than in the past. Twenty years ago, the outsourcing vendors and other “channel partners.”
core information systems of a company -- its Looking to capture such benefits, spending on
order-entry, accounts receivable and payable SOA systems is increasing quickly. In 2006,
systems, ERP systems, and the rest -- could be companies spent an estimated $8.6 billion on
expected to last 10, 15 or more years. That is no systems architected with SOA approaches; more
longer the case. Because of the accelerating pace than triple the amount expended the previous
of business change, the half-lives of information year, according to technology research firm,
systems are dwindling rapidly -- particularly for International Data Corp. IDC says spending on
companies that use the Web to attract customers SOA systems will quadruple by 2010 to $33 billion.
and sell their products and services. Their Web Already, major software vendors such as SAP,
systems can often seem to be in a perpetual state Oracle and IBM are revising their systems to
of flux because customers are directly using make them SOA-compliant, although each vendor
them -- and keeping customers satisfied requires has a slightly different spin on what constitutes a
that these systems are ever easier and more SOA. In fact, an executive at one major software
satisfying to use compared with the competition. firm says his organization is “virtually betting the
company” on SOA.
For evidence of this, simply compare a brick-and-
mortar retailer to eBay. While the in-store retailer SOA What? The Profound Business
may change its store layouts, signage and basic Impact of a New Architecture
merchandise mix once a year (or less frequently),
Taking an SOA approach means that software
eBay continuously changes its online store’s layout,
developers build or buy systems that come in
signage and merchandise mix. The company
chunks of “business functionality” -- e.g., the ability
unveils significant new website features every
to conduct a specific business activity that is
two weeks -- features that are deployed around
found in numerous companies. For example, SOA
the world within three weeks.
instructs technologists to have software modules
If these parties follow SOA approaches, they can that could handle such discrete business tasks as
integrate their business activities and the pricing calculation, or price lookup, or the quotation
information systems that support them much of a price. They would be the automobile equivalents
more easily than if they do business and design to the door handle, the bulb in the headlight, or
their systems in very different ways. the lug nut on the wheel. By allowing companies to
build and buy information systems in such discrete
The interest in SOA, then, stems from the
chunks of functionality, SOA approaches usher in
architecture’s promise to make a big dent in the
tidal wave of process and organizational change.
ever-increasing cost of IT, to help companies
(see Exhibit 1)
Exhibit 1:
Better Monitor Key Motorola:
Service Oriented Architecture
Operations By monitoring service metrics Motorola has created an ROI
model and improved productivity.
Reduce IT Costs Starwood Hotels:
The Business Value of
By implementing SOA across brands Starwood is on track to
migrate out of mainframe and save $20 million per year.
Make Rapid Changes FedEx:
in Business Process The $32 billion company overhauled its entire IT from spaghetti
architecture to SOA in three years to better manage acquisitions
and process changes.
Improve Customer Hartford Group:
Experience Has implemented SOA to enable independent agents to rapidly
assemble documents and complete transactions with their
customers.
Create Agile Wachovia Bank:
Architecture Used SOA to foster a product engineering mindset and make IT
an advisor to business.
white paper 3SOAs set the stage for companies to make major operational performance, SOA helps give
changes quickly to IT-intensive business processes. executives the performance indicators they
Until SOA, information technology has been both need to check the pulse of their business.
the great enabler of business process change --
Reduce IT costs. One of SOA’s biggest
and the great disabler.
longer-term benefits is slashing IT expenses.
As the enabler, IT has
SOA has also gained allowed companies to With the ability to use off-the-shelf system
adherents because more reengineer old, ineffi- components, companies can avoid the cost
of having to replace whole systems and
and more organizations are cient, too-many-handoffs instead swap out pieces of systems that still
outsourcing pieces of their and manual invention largely work. Several companies are using
business processes. For
businesses to specialists -- example, remember
SOA to expedite their IT modernization
HR activities, distribution, how long it used to take process.
manufacturing, product to get an airline ticket at What industries are using SOAs? They are ones
engineering and other the ticket counter that spend heavily on information technology,
before the advent of the especially to continually update their core business
operations they believe self-service kiosk? In
processes and refine their business models.
aren’t core to their success. some cases, IT has also (see Exhibit 2)
been a great disabler to
business process change. Having to replace an Internet firms such as eTrade, eBay, Amazon,
ERP or accounts receivable system can take Google, Yahoo and others come to mind. An
months (and sometimes years). Building a custom Internet firm’s business processes are its
system can cement a certain way of doing business information systems -- one is the same as the
even longer. Technology that holds companies other. In contrast, in the chemicals industry,
back from making vital changes in the way they sell systems support “physical” business processes
their offerings, take orders and service customers like product manufacturing, distribution, and so on.
increasingly can't be tolerated. An Internet firm’s
business processes For companies in some
By adopting a SOA approach, companies are continually industries, SOA will not be an
can: changing because
the competition is
option; it will be a required
Streamline mergers and acquisitions.
forever adding new way of architecting their
Computer systems slow the integration of
bells and whistles IT systems
two companies after a merger just as much
to their websites.
as culture clashes do. Companies that let
But don’t think that
SOA guide the way they build and purchase
Internet companies are the only ones that need
information systems significantly decrease
SOA. Financial services, telecommunications,
the time it will take to merge their systems
transportation, media and other industries are
with those of companies they acquire (if they
finding that their business strategies increasingly
follow similar SOA approaches).
are dependent on leveraging technological
Enhance visibility and control into the health advances. Banks and Telcos, for instance, see a
of their business operations. SOA requires wealth of new business opportunities from offering
companies to document and monitor their wireless payment devices. Telcos increasingly are
business processes down to the tiniest of shifting phone calls to the Internet, and thus their
details. Further, by isolating systems by specific core service is becoming digitized. The same holds
business activities (such as price lookup) true for media companies. Either their business
rather than specific lines of computer code, processes or products themselves are becoming
managers can much more easily identify heavily reliant on IT -- in some cases, they are IT.
bottlenecks in their operations. As a result, That means they need to be designed for rapid
SOA allows companies to move toward replacement and quick enhancement. That
real-time reports on the status of key business means they must be designed with SOA in mind.
activities. Such “business activity monitoring”
-- known as BAM in technology circles -- is a
major advantage of SOA. In a world in which
companies must continuously track their
4 white paperExhibit 2:
Who Needs Service
Oriented Architecture
the Most
BAM (Business Activity Monitoring)
Information systems built upon SOA approaches not only help companies more easily share system
components and information with their channel partners, but also rapidly update their own systems,
and significantly cut system costs, they help executives make sure their business operations stay on
track—down to the most minute levels (if necessary). This capability is known in technology circles as
BAM, for business activity monitoring.
A term coined by IT research house Gartner, BAM is not a vacuous acronym that only techies should
care about. It has real business implications. Already, organizations ranging from Motorola and the Red
Cross (to find lots of contaminated blood) to the Department of Homeland Security are using BAM.
Banks appear to be the biggest adopters, using BAM to detect fraud and regulatory compliance.
BAM refers to technology that lets organization monitor their vital signs—the status of orders, the quality
of goods coming off the assembly line, the number of customers buying or walking away from their
websites, and thousands of other “business events.” What does BAM have to do with SOA, you might
ask? Plenty. Companies that are taking SOA approaches to designing their systems want BAM software
vendors to open up their products and adapt them to the SOA environment. When that happens—and
there’s significant activity already under way—organizations will have one more reason to adopt SOA
approaches: The ability to monitor and adjust their key operations, minute-by-minute.
Yet even if SOA clears the CFO hurdles
for internal investments (in terms of payback
and timeframe), corporate divisions and
business functions
can sabotage SOA initiatives.
white paper 5Avoiding the Pitfalls of SOA painstaking architecture and systems they invested
in over many years. One way for business executives
SOA represents a sea change in the way companies not to get tangled up in technology architecture
run their businesses and develop the information wars is to create a separate unit staffed by business
systems that have become critical to success. The and IT people (and managed by SOA advocates).
early adopters of SOA are already beginning to Much like a separate but company-owned business
generate significant cost savings, big operational unit that isn’t smothered by traditional thinking,
improvements and dramatically accelerated this new organization can begin building new
business processes. But such benefits are not easy SOA-enabled applications to replace existing
to get because SOA can be resisted in many ways. systems contained within the old architecture.
Here are the biggest ones -- and suggestions on Once the systems are built and tested, business
how to resolve them. units and functions can begin cutting over to the
Expectation of a Fast Payback new SOA. This approach is being adopted by
some large financial services companies to generate
From our experience with more than a dozen SOA early successes with SOA.
initiatives, the biggest barrier to adopting SOA is the
demand of a quick return on investment. Unlike Deciding Where to Begin
some technology initiatives, SOA initiatives are A fourth big challenge in embarking on SOA is
not likely to pay back rapidly -- say, within a year deciding where in a company’s vast IT infrastructure
-- and so “quick hits” can’t be expected. SOA requires to begin replacing systems with new SOA-
companies to overhaul their IT infrastructure and designed ones, and where to build whole new
rethink their business processes -- two things ones. Trying to replace every system at once is to
that don’t happen overnight. Executives, however, flirt with disaster; it’s a massive system rebuilding
should expect substantial paybacks on their SOA effort. Companies must look closely at their port-
investments by Year 3 or 4, based on our experience. folio of business processes -- just as many look
Keeping Business Processes Siloed annually at their portfolio of businesses -- to
determine which ones would benefit most by
One of the attractions of SOA-designed systems being re-architected using SOA approaches.
is that they can be shared by many businesses and A very large North
business functions in a multi-business corporation. American trucking In fact, more than any other
However, getting that benefit requires those company decided type of information system,
divisions and departments to agree on the design that this business SOA applications require
and features of systems that were once built process was its
to meet custom requirements and must now be
cross-functional teams
order management
constructed as shared services. A large financial process, and thus is with deep expertise in a
institution, for example, couldn’t get its business focusing its initial company’s business
units to agree how to define the account creation SOA systems effort processes and business
process that would be shared across business there. The rest of its
units (e.g., one unit mandated a customer’s Social
model. Such business
systems will largely
Security number to open an account while another remain untouched processes are the building
unit didn’t, believing that data could be captured in the short-term, blocks of SOA systems.
at a later time). In other companies, business only having to be able
units that will share a SOA system often balk at to link to the new SOA-designed order manage-
the extra money they must pay for the upfront ment system.
system design work. A leading IT research company
says such design work can cost 30% to 100% Overcoming a Host of Technical
more for SOA systems vs. traditional systems. Challenges
Hitting the Wall of the Existing IT One of the biggest technical barriers to SOA
Architecture relates to documenting the business processes
and “rules” the system will automate. A system’s
Another SOA adoption barrier is a company’s rules are the logic that designers want a business
existing IT architecture. When it comes to the arcane process to follow (e.g., “customers west of the
and complex issue of computing architecture, Mississippi must pay 1.5 times the shipping costs
some technology factions (including some soft- per mile than customers east of the Mississippi
ware vendors themselves) are wedded to the pay for shipping”). Technologists often struggle
6 white paperwith capturing such system requirements from Explaining SOA to the CEO
the business people who understand the activity.
This issue is accentuated with SOAs because they For business executives who want a layman’s
automate specific business routines and make explanation of SOA, you’ve come to the right
them available to other systems. The best way to place. It helps to understand what SOA is and
capture the business rules of SOA-designed systems how it works. We will, however, not make this a
is to use true business analysts (who understand technical discussion that only a computer scientist
business operations) – not systems analysts. can follow.
These aren’t the only challenges of adopting SOA SOA stands for “service oriented architecture.” Like
approaches. Another barrier to adoption is the construction and community development
communicating the value of SOA in business businesses, computer systems are designed with
terms to business people. To date, SOA has been architectural approaches in mind. Architecture
too much of a bottom-up, IT function-driven for a high-rise or home governs how the building
exercise. When talking to the top management will be designed and built. Architecture for
team, SOA advocates need to subordinate the computer programs determines how their software
technology wonders of SOA and be able to rattle off should be designed, written and run. A SOA guides
its concrete business benefits -- backed by examples software developers -- whether those in a company’s
of companies that have actually achieved them. internal IT department or a software vendor’s
product development lab -- to build software in
SOA and the New World of Business modular components akin to Lego building blocks
that can be snapped into one another. That’s
Companies that have been sitting on the sidelines
much different than the traditional monolithic
of SOA, waiting for the benefits to be proven,
approach which treated an application as one large
should now look to get in the game. Wells Fargo,
piece of software, making it difficult for developers
CCC, eTrade, Amazon, Motorola and other leading
to isolate and update parts of the system.
organizations are among dozens of companies
generating new revenue or cost savings from With SOA, the modules of a system are built in the
buying or building information systems designed form of “services” rather
according to SOA principles. From their experiences, than chunks of computer In most organizations, the best
it makes sense to jump into SOA now because of code. While a service candidates for SOA systems
the time it will take for companies that haven’t does contain computer are those that are critical to
made SOA investments to receive a pay back. code, it is defined less
by what lines of code
business success, supporting
But it also makes sense to approach SOA wisely,
are in it and more by fast-changing business
not haphazardly. Not all of a company’s systems
what concrete business processes that must rapidly
should be re-architected to a SOA, to be sure, and
function or activity it incorporate new technologies.
for some companies perhaps most systems
performs. Such an
shouldn’t be. For some companies, systems that
activity could be to look
support customer service and order fulfillment
up a price from a large online catalog of prices.
should be SOA priorities. In other companies, the
Or it could be a credit check on a customer. Or it
key business processes are marketing and sales,
could be the issuance of a printed or electronic
which should receive initial SOA consideration. In
invoice. Any discrete activity in a business, of
still others, SOA approaches should be brought to
which there are hundreds or more, could be
systems in product development, engineering
turned into such a “service.”
and design.
All of a sudden, a computer system written or
Companies that can afford to be patient with SOA
purchased by a company doesn’t have to serve
payback and develop their systems and business
just the one department that is using it. The system
processes with the new skills that SOA demands
parts can be used in many places.
will be poised to leap ahead of competitors that
can’t. These companies most likely will be ones Thus, a SOA would allow multiple departments in
whose business leaders -- not just IT leaders -- are a company to use just one price lookup service
the first to understand the impact and advan- rather than forcing each to build or buy a price
tages of SOA and demand that their divisions and lookup system. But the benefits of SOA are more
business functions build new systems with SOA than ending duplicative systems. SOA makes it
principles in mind. far easier for companies to update their systems
white paper 7-- or parts of a system -- without having to Producer/Consumer. A producer (also known
replace the whole thing. A company that needs a as a publisher) is a party that offers a specific
new price lookup capability for a SOA-built order “service”. A consumer uses the service
management system would just have to plug in a (company or another organization). SOA
new price lookup “service.” This capability is par- separates producers from consumers.
ticularly important for companies that conduct a Thinking this way forces a company to
good deal of business through the Internet, where understand all the possible uses of the
systems must continually be updated and replaced information it provides, both internally and
to remain competitive. (Just ask eBay, Dell, externally. For example, wouldn’t a distributor
Amazon, FedEx or other companies that do most be more efficient or sell more of your product
of their business if it could use your pricing web service on its
The reason to define through the Internet how website?
chunks of software by often their Web applica- Web Services. When software developers
tions are updated.)
such business activities follow SOA approaches and build systems in
rather than by their When a business activity modules called “services,” those services can
is programmed as a be written for any computer system standard.
computer code is that it service, it makes it Developing SOA for “Web services” means
enables any SOA- much easier to change building systems for the Internet’s World
designed service to be that activity to reflect Wide Web. Web services are the most common
new policies. A retailer, type of services that follow SOA approaches.
used elsewhere in a for instance, that tells
company or in other its 15 stores to remove Enterprise Service Bus. The ESB helps com-
discounts on inventory munications between services. It intelligently
companies. routes data between services and manages
more than 30 days old
needs only to change exceptions in the interactions.
one service, rather than the code running on 15 Granularity. This term relates to how well-
software systems. defined a service is made to be. The more
Most great technological advances come with a defined a service is -- i.e., the more granular
potpourri of dizzying terms and acronyms. SOA is it is -- the less chance it will be of value to
no exception. Here are some of them: another organization. That’s because the
more granular a service is, the more it has
been written to suit the needs of one
organization’s business activity.
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting and business process
outsourcing services. Cognizant’s more than 40,000 employees have a single-minded passion to collaborate with
clients and leverage information technology to make their businesses stronger. With global delivery centers
in Asia, Europe and North America, we combine a proven onsite/offshore delivery model, infused with a distinct
culture of customer satisfaction. A member of the NASDAQ-100 Index and the S&P 500 Index, Cognizant is
ranked among the top information technology companies in BusinessWeek’s Hot Growth Companies.
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Credits
Cognizant’s Global Technology Office:
Suresh Ganesan, Siva Visveswaran, Gajen Kandiah, Sanjiv Gossain and Sudipta Singh.
Bloom Group:
Robert Buday
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