SOA as Internal SaaS 2

I notice that while I was on holiday Joe McKendrick picked up on my response to his initial hypothesis on SOA as Saas (here).  I must have gotten my language in a tangle somewhere as Joe seems to end on a note that suggests that we disagree whereas in fact I think the opposite:

“But will enterprises simply end up entirely on the consuming side of business services? What if part of their core business (no matter what industry) becomes service provision as well? We may see the rise of ‘Intrapreneurial’ SaaS, in which corporate units (probably, but not limited to, IT) that build, maintain, test, and offer libraries of SOA-enabled services for consumption either by customers within the organization, as well as external customers willing to pay for those services on an incremental basis.”

It was never my intention to suggest that organisations would only be consumers of services (although I believe that increasing specialisation means that they will largely be).  All organisations are going to be providers of some services, but my contention is that they will become forced to specialise in order to survive.  The remainder of my argument was that for the 20% of services that remained for them to deliver - along with the capabilities they will need to compose these with external services - they were going to find it increasingly difficult to sustain the ability to implement these with internal IT capabilities - essentially platforms are of an infrastructural nature (i.e. subject to economies of scale) and therefore their trajectory is towards consolidation in the same way as any infrastructural technology.  My point - perhaps not very clear given the length of my post and the fact that I’m often blogging early in the morning when my daughter wakes up - was that SaaS relies on the creation of highly scalable platforms that support specific architectures along with the other capabilities needed to monetise service provision (e.g. billing, service management, reporting etc).  As a result we may increasingly find that organisations look to compose and deliver services targeted for deployment and execution on these utility platforms rather than struggle to deliver them on platforms maintained just for them when this will be both expensive and not aligned with their core business.

In summary I guess my point was that although SaaS is not SOA, SaaS platforms - given their infrastructural nature - may become the defacto IT deployment and execution environment for many service providers given the difficulty they would have in sustaining their own IT environments competitively.

I’ve got a lot more detail on this in my series of posts outlining my beliefs about the changing nature of business and IT - if you’re interested have a look at Elements of the Future Business Ecosystem (Part II).

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Elements of the Future Business Ecosystem (Part II)

Introduction

In part one I started to discuss some of the changes occurring in the business environment that will have an impact on IT organisations and service providers.  In particular I considered the need for greater modularity in business architecture - to support greater adaptability - and our trajectory towards the emergence of increasingly specialised service providers driven by the Internet and rapidly consolidating standards.  In this post I’ll look at how these trends will drive a change in the value proposition for technology.

The Shift From Products to Services 

If we consider the implications of the changes that I discussed in part one we can see two major, parallel shifts:

• Increased understanding within enterprises of the modular business capabilities needed to deliver value to stakeholders along with clear metrics about their performance; and
• The emergence of specialised service providers who can be used to provide those capabilities that we do not wish to focus on.

As increasingly powerful abstractions allow us to modularise our capabilities, we can consider our operations from a service viewpoint without worrying about implementation.  This will give organisations greater clarity in terms of what they do and help them to raise their horizon from the complexities of non-metricised implementation issues - whether organisational or technological - within which they find themselves mired today.  As a result of this shift companies will increasingly want to talk about the business services that they need rather than procure base technology or products - they will no longer want to buy the products that they would need to deliver non-core value themselves (as they do today) but would rather place expectations on partners for the delivery of the desired results with no concern for the way in which the value was delivered (Figure 1 - Commoditisation of Technology). 

  

 

Such capabilities may be small and wholly automated  - such as access to valuable data or specialised algorithms and calculations - or as complex as whole BPO propositions.  They are going to be services rather than applications, however, since they are firstly going to represent the delivery of discrete value to the consuming organisation rather than just the tools that they would need to use to generate value for themselves and secondly they will need to be supportive of composition into more complex value chains.

The Easy 80%

One of the interesting implications of such a shift is that such specialised partners may end up delivering the 80% of non-core capabilities that an enterprise requires, leaving them to implement and execute the remaining 20%.  Such a shift would represent a large flight away from the purchase of the technology and products needed to support the implementation of this 80% towards the procurement of the actual capabilities themselves. 

As a result I believe that these changes will ultimately move the focus of a large chunk of enterprise procurement away from technologies and products and onto service provision from partners.  Such a move would reflect the changing nature of organisations, since - as discussed in the previous post - their role would be to source and orchestrate specialised capabilities rather than minimise transaction costs by running them internally.

The Other 20%

Whilst organisations will increasingly look to leverage partners for 80% of their needs in place of buying products - along with implementation and maintenance services - there still remains the 20% of services that represent their core differentiation (given that this is primarily an IT skewed blog I’m going to concentrate on that aspect).  The question is how these organisations will choose to implement the systems that underpin the services that they offer to other people - both their own discrete capabilities and those that pull together value chains across internal and external capabilities - especially as they will now have a taste for buying ‘outputs’.  I feel that there are three major points to consider:

• The increased understanding of the business capabilities required by the organisation to deliver value means that the enterprise can state what services they need to be realised.  Rather than source products and technology to realise them, however, organisations are going to increasingly look to external IT service providers to deliver these realisations more quickly, more cheaply and more reliably through leveraging architectures, patterns and infrastructures across customers in order to deliver the economies of scale that are beyond the reach of the common enterprise IT department - essentially they are going to procure the desired outputs (i.e. services) delivered with service level guarantees rather than the vague potential of implementation using some inert product(s).  I strongly believe, therefore, that IT service organisations need to invest in Industrialisation - bullet proof platforms (preferably shared SaaS style platforms) with strong service realisation factories that facilitate the rapid construction or composition of services with outstanding quality of service attributes targeted specifically at the chosen platform.  Essentially as providers are judged on outputs so the characteristics of delivered services come to dominate the procurement process in place of the technologies used in their implementation - i.e. cost, timeliness, payment models, reliability, reporting etc.;
• The need for lower costs and greater repeatability/reliability will drive the consolidation of platform providers to a small number of commoditised technologies wrapped into service platforms that support the realisation needs of many organisations - essentially IT platforms will become commoditised utilities in the same way that electricity generation was unbundled from individual companies and focused in large, infrastructural providers.  Such a shift leaves IT service providers with greater repeatability through industrialised and consistent target platforms around which they can innovate in terms of service realisation and composition factories whilst simultaneously giving end-user enterprises the benefits of choice in service provision (because of interoperability), reliability,  and economies of scale.  Essentially such platforms enable end organisations to be specialised in terms of the services that they offer whilst eliminating the need to expend the time, attention or money needed to design service and technology architectures or run a scalable, always-on platform with strong billing, service management, reporting etc. as a way of delivering and monetising the services that they execute.  This consolidation also becomes critical given that such platforms will provide discoverability for service providers as well as visibility and tracking of capability performance; and
• Enterprise IT breaks down in the face of this disaggregation of the technical environment; essentially each capability owner is free to choose an IT service provider who best meets their needs in terms of service characteristics, from basic service platforms all the way up to Internet scale platforms.  No longer does a drive by IT to limit technology costs force homogeneity across business units irrespective of fit; rather each external IT service provider competes on their ability to deliver services for the capability owner at the cost and service levels appropriate to the requirements and absorbs a large part of the costs of doing so by sharing resources and solutions across customers.  This is much easier where external providers concentrate on providing infrastructural capabilities in this way - the issue for internal IT departments is that they can only afford to support one set of technical capabilities whilst remaining cost effective; where external providers have to compete for service realisation business, however, a marketplace of people providing different levels of service and cost will naturally grow out to cater for the needs of many different kinds of service providers, thereby supporting the different needs of different capability owners within the organisation.

To be clear here I don’t believe that SaaS alone is the answer, rather that there need to be commoditised platforms with similar characteristics (e.g. multi-tenancy, billing, scalability etc.) that support the controlled delivery, hosting and execution of differentiated services and compositions for individual capabilities within enterprises.  The big problem with SaaS from my perspective is that it - by definition - provides economies of scale in the provision of software that supports the enactment of some part of a business capability (or capabilities).  As companies increasingly specialise, however, there is a major issue with this; SaaS by definition provides commoditised software support for standard business capabilities - if the capability itself is so standardised as to support commoditised software then why would I be interested in enacting that capability?  Surely such business capabilities would be provided as a service to me?  As an example if I decide that customer relationship management is not a core capability (e.g. I want to concentrate on product development) would I be more likely to outsource the software that would be needed by a capability to manage customers (but still execute the capability in the same way as every one else by using such software and thereby distract myself from my core mission for little or no differentiation) or would I just partner with a specialised provider who can offer economies of scale and scope in the provision of customer management on my behalf?  At the end of the day if the business processes that support a particular capability can be codified to the extent that they can be sold to multiple businesses then surely those processes are ripe for consolidation into a specialised service provider who concentrates on such infrastructural capabilities.  This is one of the major shifts that is emerging in the provision of repeatable, infrastructural capabilities - where we previously had to replicate commoditised capabilities within each organisation in order to minimise transaction costs we will increasingly be able to centralise these capabilities within specialised providers who deliver better service and lower cost through economies of scale and/or scope.  This is in opposition to the current model where repeatable capability is codified within application software that supports the execution of such commoditised processes many times within end organisations.

The upshot of all of these issues is that IT service providers - whether internal or external - need to increasingly understand the capabilities that an organisation needs to deliver and to use this information to be able to engage on a results basis.  They need to be able to compete on their ability to implement, deliver, compose and manage the required services using commoditised platforms rather than on selling the benefits or otherwise of individual technologies; in short they must sell meaningful business value.  It is up to the IT service provider to ensure that they have standards-based technology that enables them to realise and orchestrate services with competitive characteristics and guarantees, rather than placing the onus on the consuming organisation to understand, select, implement and manage technology - something that is unlikely to be core to their business.  Service orientation supports this push by delivering a set of abstractions that allow us to discuss the capabilities to be delivered along with the service levels and costs that they need to support, giving us the framework against which to compete on required outputs instead of implementation technologies.

The Changing Landscape

As a result of these changes I believe that enterprises will increasingly be uninterested in the technical details of implementation, since greater clarity on how value is delivered will enable them to procure or deliver the services that they need to underpin their mission rather than the base technology needed to implement such services themselves.  Procured services will thus be delivered using any processes and technology platforms that the IT service provider sees fit to use, since competition will move from how services deliver value to what value they actually deliver.  In this environment I believe that competition will move from technology and technology features to the quality and cost attributes that implemented services support (Figure 2 - Competition on Service Attributes).

 

 

These cross cutting concerns or quality attributes (such as modifiability, performance, security, etc) will determine whether the service provider can deliver competitive SLAs to meet customers’ demands.  One of the implications of this shift is the fact that service providers will need to deliver services on a strong base, with a standardised and well understood set of technologies, patterns and service management practices that are well factored and well integrated, since this is what will allow them to deliver consistent and superior service characteristics.  A related example may be that of automotive design, where people buy a car for its ability to get them from A to B but choose the actual implementation (i.e. vehicle) based on its characteristics (e.g. speed, handling, economy).  Such characteristics are largely determined by the quality of the technology with which it is constructed, however, (e.g. engine, gearbox etc) along with the design which brings them all together. In this context very few people buy a car because of a particular technical component or insist that one part of an engine is replaced with another; essentially people buy the experience provided by the car and not the individual pieces which comprise it.  As a result, I believe that technology in this new model becomes an enabler for differentiation in service provision rather than the main focus of procurement.

Conclusions

In this post I have considered how the shift to service provision impacts the way in which organisations will procure capability in future.  In particular we have considered two main aspects:

• As we move towards a market of specialised service providers and unbundling so organisations will be able to procure the 80% of non-differentiating services that they need rather than the technology and people they would need to use to realise such services for themselves.  I’ve already discussed the benefits of unbundling in a previous post; and
• For those 20% of services that remain within the organisation we will need a way to realise the supporting IT.  In this context we will see increasing consolidation of utility computing (nee SaaS) infrastructures externally to the enterprise and a shift from selling products and technology into organisations towards competition on realising the services most efficiently and cost effectively on such industrialised, utility platforms.

These issues have two different implications for IT departments and for IT service providers.

• CIOs and their staff need to help their business colleagues to understand the benefits of unbundling and prepare the ground for the leverage of external service providers.  At the same time - for core capabilities - they need to keep an eye on the emergence of utility computing platforms and take every possible opportunity to offload the delivery, support and management of services onto specialised IT service providers who can deliver new and changed services more quickly, reliably and repeatably and with much greater economies of scale.  Such a change will leave IT staff to execute the much more appropriate job of understanding shifts in technology and helping business colleagues take advantage of such shifts by reworking business models appropriately.  Although I won’t get into this until the next post I believe that CIOs and their staff will increasingly become ‘consultative’, understanding the enterprise, the services available in the marketplace and how to bring both together for the benefit of the organisation within which they work; and
• IT service providers need to recognise that the shift to service-orientation will change the nature of procurement.  As organisations increasingly understand the capabilities they need IT service providers will need to position themselves as more competitive realisers of these services rather than just push technology at the consuming organisation - such behaviour will merely demonstrate an inability to understand the needs of the organisation by surfacing complexity rather than making the procurement of the desired value as painless as possible.  Proactive providers will begin to deliver the Industrialised platforms and methods needed to compete in such a market and begin to work with both business and IT people within end organisations in order to educate them and enable them to focus more completely on their core mission. 

In my next post on this subject I’ll talk more about the types of companies that I see emerging from these shifts and the shape of the ‘future business ecosystem’.

 

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Sunshine as a Service and Blog Guilt

Hello. My name is Ian and I haven’t blogged for 12 days.

I have to say that I’m amazed; I’ve just enjoyed a couple of weeks holiday in the unseasonably fine weather here in Wales and now find myself feeling horribly guilty for not posting over that period.  I only started this blog a few weeks ago and I’m already suffering from ‘Blog Angst’.

Oh well, I’m back in work today and so I’d best pull my finger out and have a look at what’s been happening whilst I’ve been building trampolines and such like with my kids. 

The sunshine was pretty cool, though

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SOA as Internal SaaS

There have been a few articles bouncing about recently on the subject of whether SOA represents an enterprise internal view of SaaS.  I picked up the thread initially on Joe McKendrick’s blog and followed it for a while across other sites.  The central question was ”Is SOA Software as a Service, delivered internally?“.  To be honest before reading through this article I was in a similar camp to Harry Pierson, whose reply suggested that SaaS and SOA are different things with the only common element being use of the word service.  My only disagreement with Harry’s assertions initially came from the fact that he concentrated on describing service-orientation as a software concept whereas I believe that there are powerful applications for the concepts of service-orientation in business architecture as well.  (And if you’re in Europe, Harry, we also have the ITIL/ISO 15000 definitions of service to further confuse the issue!).

Now overall I admit to having been slightly dismissive of SaaS on occasions as I feel that we’re heading towards a market where we will increasingly be able to subscribe to BaaS (sorry - Business as a Service :-)) propositions.  I believe that in the future organisations will be able to leverage specialised external capabilities in order to construct an overall  value chain rather than just buy software that enables them to continue executing non-differentiating capabilities themselves (for more information see previous post here).  I’ve never been in any doubt that SaaS would be a constituent element of such services but I’ve doubted the value of software delivered in isolation - I’ve seen such things very much as a stepping stone to much more complete business services delivered by increasingly specialised providers (some good examples of the kinds of capabilities that I see emerging are discussed here and here).

So, in this context I read through Joe’s article and immediately thought “No, SOA is not SaaS”.  I could see that some software propositions could be offered as services but to me the wider shift that’s occurring sees organisations looking to purchase results rather than the tools they would need to struggle to gain results for themselves.  In this context, therefore, the idea of different parts of an organisation becoming internal SaaS providers was kind of anathema to me as that was too application centric and placed too much of the business onus on the consuming organisation. 

The idea continued to bug me for a few weeks, though, and I eventually came to some accommodation with the concept based on a number of perspectives:

• As an elevator pitch the whole idea has some merit as many people now get SaaS - ”I’m buying something that I can get more quickly and more cheaply and which makes my life easier” - whereas SOA is still a pretty ephemeral concept for most.  SaaS pushes the right buttons in terms of reuse, economies of scale, standardisation and cost transparency that I feel are absolute imperatives for the organisation of the future and gives us a frame of reference to start moving the conversation up the value chain to business services;
• Interestingly, as an organisation modularises - and then begins to unbundle -each business capability will offer a number of services back into the enterprise.  Such services will no doubt have several interaction models to support their service provision, from simple document based interfaces through to service portals that would look pretty much like SaaS from the outside but which represent access to a complete service rather than just the software needed to support the delivery of one - think Amazon for example.  As a result if we can get people used to the idea that they offer interfaces for other parts of the organisation to use by leveraging the current buzz around SaaS then that’s probably a good thing;
• Finally there’s the whole conversation about how such services get realised - I mean there has to be software and infrastructure somewhere in the equation.  Interestingly I feel that as organisations increasingly grasp the concepts of service provision - driven by SOA, ITIL and SaaS - they will need to grapple with the idea that as a service provider they will need to deliver services quickly, cheaply and reliably with inclusive service management, reporting, billing etc. in order to be competitive.  As a result organisations will unlikely be able to sustain expensive, bespoke  and plodding enterprise infrastructures and will start to look at external utility computing platforms to take advantage of the economies of scale and repeatability that such platforms provide.  At the end of the day a traditional IT department can only provide computing resources to a business capability for a certain level of amortised cost - since the resources are hardly shared at all - and they don’t have the capability to support comprehensive service support infrastructures.  In addition, once an enterprise starts to consist of smaller, more specialised providers with complete control over their execution the previously high but shared costs of IT will become more apparent to capability owners and make them realise that either a) their IT support costs are unsustainable given their likely level of revenue or b) they have been subsidising the rest of the organisation and can actually gain access to IT at a far lower cost via utility platforms and providers.  When this realisation is coupled with the ability for capability owners to choose alternatives I believe that this will result in a flight to utility platforms for the delivery of the software services needed to underpin the capability.  Differentiation for such utility computing platforms will be based on cost, reliability, support for rapid delivery and customisation of services and comprehensive support for ’service enablement’ i.e. reporting, auditing, billing etc.  As a result a third perspective on the question of SOA as SaaS is to turn the issue on its head and say that although internal SOA is not SaaS we will increasingly need to offer businesses the ability to deliver their enabling SOA on a utility SaaS platform based on commoditised and cheap technology - the whole thrust of the industrialisation initiative that I’m working on.  As a result there is a value proposition into business capabilities based on migrating away from  their existing IT and delivering their services on a 3rd party utility infrastructure - much like the move away from company specific electricity generators in the last century and into the hands of infrastructure providers (I don’t really want to get into the ‘IT doesn’t matter’ argument here but I will say that such enabling platforms fall into that camp, taking care of commodity technology so that service providers can concentrate on how technology is used to support innovative business models instead). Interestingly interoperability also means that each business capability - even those contained within a single ‘enterprise’ - could potentially leverage different utility providers if each offers a proposition most suited to the needs of each capability (and thus the idea that we can - or would want to - enforce a ‘common’ enterprise technical architecture becomes defunct beyond the level of interoperability standards).

So - returning to the original question - is SOA SaaS delivered internally? The answer is no.  Does a story built around SaaS concepts give us some leverage to sell the concepts of SOA?  I would say yes.

So where does that leave us?  Well as a CIO I would be looking for opportunities to lead the shift to utility computing by using the SaaS analogy and helping my business colleagues to understand the advantages of a shift to more modular organisational styles.  If we apply SOA at the business capability level then it provides the first sustainable approach to reuse that we’ve seen - if businesses can understand reuse at the level of services that they actually need - rather than have low level object designs waved in their faces as examples - then they will much more quickly understand the benefits on offer.  If we couple this with monetisation at this service level and use understandable concepts like SaaS to sell the idea then we have the potential to lead our colleagues into a more sustainable model rather than just be reactive to ever louder demands for less cost or more adaptability.  Most importantly, however, such changes open the door for the significant shift - increasing and aggressive partnering to drive innovation in business models.  All of these issues represent the new and changing role of the CIO - no longer just someone to manage the IT resources of an organisation but rather the leader who interprets the opportunities that technology presents to change business models and gain competitive advantage for the organisation. 

From an IT provider perspective the challenge is both to evangelise the opportunities created by the current seismic shifts brought on by technology change whilst building out the utility computing - nee SaaS - infrastructures that will deliver increased repeatability in service development and delivery.  Such platforms will need to be much more than just computing power - they will need to be complete, industrialised solutions to the delivery of computing services.  They will require strong service discovery and development factories, bullet proof, virtualised and maximally shared hardware, comprehensive service enablement and provisioning capabilities and finally they will need to be highly automated and support self provisioning of services, billing strategies and rates, service level monitoring and access rights.  In short they will need to encapsulate all of the commodity elements of the technology - both runtime and design/development time - and make it simple for service providers to create and deliver the services they need using a production line approach.

To summarise I guess that SOA isn’t SaaS delivered internally but SaaS might increasingly be the way in which organisations - whether ISVs or enterprise customers - deliver their SOAs, helping them to concentrate on their differentiation whilst delivering to an industrialised, utility computing infrastructure using strong service development factories.

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Elements of the Future Business Ecosystem (Part I)

The Wild Outside

It’s no secret that the global business environment has changed radically over the last twenty years due to the effects of globalisation, radically increased competition, pervasive regulation and rapid commoditisation. In addition the increasing information content of products and services is leading to a rapid decline in cycle times as their creation, maintenance and suspension is far more rapid than that of physical goods.  We’re all therefore continually striving to find more innovative propositions with improved service at lower cost - as a result we’ve never needed to be more responsive. Unfortunately, however, most organisations are hampered by organisational, process and technology practices belonging to a less dynamic age, making them unable to adapt within the time and cost parameters increasingly demanded.  These practices make it difficult for us to recognise opportunities in the mass of data with which we’re increasingly being overwhelmed and then frustrate us in any subsequent attempt to adapt, with change being complex, time consuming and hugely expensive.

Whilst these issues have been bubbling away with increasing ferocity under the apparently calm surface of many organisations over the last decade, those people who are continually running ever faster just to keep a lid on things are in increasing trouble - the global environment is set to accelerate further over the next few years.  Technology is increasingly enabling the creation of new business models in support of customers and partners who expect continual service on their own terms – where, when and how they want it - and the speed of change enabled by technology innovation on the Internet represents an almost continuous source of change.

In order to succeed in future, we’re going need to find ways of facing these new realities.  In particular we’re going to have to address the following major issues:

• The need for greater adaptability: The increasing pace of change will force us to adopt strategies that specifically stress adaptability.  Current - mostly dysfunctional - command and control structures that attempt to predict demand and ‘push’ resources will increasingly break down due to the unpredictable nature of the environment.  Organisations will thus need to reinvent themselves as a set of modular business capabilities that provide specific, known and costed services that can be reconfigured on a ‘pull’ basis in response to changing demands; and
• Increasing specialisation: New collaborative technologies and interoperability standards will continue to reduce the transaction costs of collaboration with other organisations.  These changes will enable organisations to replace mediocre internal capabilities with world class services provided by partners, helping us to concentrate on what’s truly important and combat increasing attention scarcity.  We will therefore see increasing specialisation, with organisations who do not outsource non-core concerns finding themselves at an increasing cost and capability disadvantage.

Let’s have a quick look at each of these issues.

The Need For Greater Adaptability

In order to address the need to survive in an increasingly uncertain world organisations need to adopt strategies that specifically stress adaptability - at the end of the day the only way to deal successfully with uncertaintly is to be able to adapt successfully to the changes that occur.  In order to achieve adaptability, however, we must first understand what capabilities are needed to deliver to our stakeholders before considering exactly how all of these component parts combine to deliver value.  Gaining this higher level view of the organisation requires a systematic approach to enterprise design which emphasises the creation and coordination of shared business capabilities in place of hierarchical silos with cross cutting concerns.  Such an approach concentrates on reconceiving the enterprise as a set of collaborating business capabilities which have well understood commitments to the rest of the enterprise and which are firmly placed within the context of the overall value chain.  In particular each capability is expressed only in terms of its commitments - there is no external view of the way in which the capability delivers on these commitments in order to ensure loose organisational coupling.  These changes deliver a set of abstractions that allow senior management to define what the organisation should do without surfacing the mass of how, delivering greater adaptability at both levels.  This brings benefits at a number of levels:

• Organisational leaders are able to concentrate on what they are trying to achieve at the enterprise level by ensuring that they have the correct capabilities and that these capabilities are offering the cost and service levels that the organisation requires.  In addition such leaders are able to concentrate on macro level changes, reconfiguring value chains and renegotiating commitments with the capability owners in response to changes in external demands; 
• Capability owners - including partners - have clear responsibilities and are empowered to innovate within the bounds set by these commitments.  In effect the design of the organisation only constrains the capability owner in terms of required outputs - they are free to produce these outputs in any way they choose as long as they continue to offer competitive services; and
• Organizationally we have much greater adaptability, since change can be understood and managed at multiple levels of abstraction - capability owners can implement changes - for example service improvement or regulatory requirements - without impacting the wider organisation whilst enterprise management have a system of abstractions that allows them to understand the impact of change and to  rework the organisation appropriately.

Although these concepts all sound pretty cool, until recently we’ve lacked a consistent set of abstractions with which to define capabilities, the services they offer and the costs and service levels that they conform to.  In the last few years, however, the concepts of service orientation have emerged. Service orientation allows us to view complex systems – such as an enterprise - as a group of collaborating services that can be coordinated to deliver value, each with its own purpose, contract and service agreement.  These techniques can thus be used - with some extension - to form the basis for the systematic design of the enterprise by helping us to understand and define the business capabilities that are needed whilst deferring their implementation to capability owners. Each business capability can then be delivered using an arbitrary combination of people, physical resources and technology.  This removes the artificial boundaries between different kinds of resources by concentrating on how they combine to deliver service commitments rather than splitting them into – for example – ‘business’ and ‘IT’ and thereby losing the necessary value context.  From an IT perspective this cuts across the traditional view of ‘Enterprise IT’ since capability owners are free to procure any necessary services - potentially including IT - from anyone. 

Increasing Specialisation

Despite the efficiency benefits of specialisation most firms continue to be generalists, executing non-core capabilities in-house rather than rely on other specialists to execute such services on their behalf.  The main reasons for this have been twofold:

• Current organisational structures do not allow for easy outsourcing due to the lack of clarity around discrete business capabilities - it has generally been difficult to untangle consistent threads from the hairball of organisational structure; and
• The transaction costs of collaboration have largely been a barrier to the leverage of external capabilities since such costs have traditionally been sufficiently high as to negate the benefits gained through specialisation.

The former issue will increasingly be resolved through the use of methodologies – such as service orientation - that enable business capability mapping in the search for greater agility.  Transaction costs, however, are a different issue. Traditional economic theory suggests that firms exist to maximise efficiency; in order to do this they organise services internally to themselves in order to minimise the costs of transacting business with third parties. These costs consist of the effort required to find, establish, execute, manage and conclude partnerships for the provision of services.

Until recently these issues have been a sufficient barrier to the emergence of a specialised service provider market, with external transaction costs remaining sufficiently high to prevent large scale outsourcing in all but a few areas of broad applicability (e.g. HR or Payroll).  The increasing capabilities of the Internet are set to change this pattern, however, with key standards facilitating the exchange of information between organisations in a much simpler way.  In particular web service standards - both WS-* and Web 2.0 based - allow documents to be exchanged with partners over the web, forming a basis for a contractual commitment and enabling them to execute some service on our behalf.  When we also add in the more human-collaborative aspects of Web 2.0 and the increasing convergence of communications technology we can see that we have a powerful platform for cross-organisational collaboration. 

By lowering the costs of information exchange and collaboration these developments are opening the door to a change in the nature of the enterprise.  We are headed to a market where organisations will be increasingly virtual - the enterprise will no longer exist to maximise efficiency by minimising transaction costs but to pull together a network of highly efficient, specialised providers in order to deliver an overall proposition.  These changes will be complemented by the modularisation of enterprises, since the definition of a business as a set of services enables us to make clearer decisions about how we realise them.

This process will deliver advantage to organisations in three major ways:

• Enabling tighter focus on the provision of differentiating services: Currently organisational attention spans a myriad of business capabilities, most of which - whilst critical to the overall delivery of value - are not key areas of focus.  Such non-core capabilities represent a diffusion of attention, increasing the information to be absorbed in order  to remain competitive and wasting organisational energy.  As we’re increasingly overwhelmed by information about change - whether competitive, technological or sociological -  attention will become a highly valuable asset and will need to be focused in the correct areas if we are to have any chance of making a sustained impact in our chosen field;
• Boosting wider performance by replacing mediocre internal capabilities with world class services provided by specialised providers: Non-differentiating services will already suffer from a lack of focus and therefore be less effective than those provided by people whose sole concern is to deliver sustained excellence in those capabilities.  As increasing competition and attention scarcity begin to bite we will have even less spare energy within the organisation to devote to these supporting capabilities, leading to rapid degradation.   Those organisations that take the opportunity to leverage 3rd party providers, however, will be exponentially better than those that do not - they will benefit from the ability to focus on their own areas of specialisation whilst simultaneously benefiting from the continual improvement of their specialised partners;  and
• Maximising learning opportunities by working with other specialised providers to improve the overall value chain:  The emergence of extended value chains will see many specialised providers coming together in order to deliver overall propositions to the market.  Where these providers come together there will be abundant opportunities to leverage their different perspectives to generate innovation around the way in which the overall value-chain functions - such innovation will be continuous, sustained and generate improvements at a rate that is inconceivable in today’s static organisations. In addition, the fact that each provider works with many other organisations maximises their opportunities for learning, a stark difference to current internally focused capabilities whose horizons are highly limited.  

Standing back we can see that the move towards specialised service provision further destroys the notion of enterprise IT; as capabilities are unbundled to other providers the only ‘architecture’ that remains critical is adherence to interoperability standards.  Each specialised provider needs to be able to interact with the cloud but can no longer expect to force a unified IT architecture across everyone in the value chain.

Conclusions

In this first post I have considered some of the broad changes that I think are going to have a major impact on enterprises but I’ve really only brushed some of the implications from an IT perspective.  I guess the big take away from this initial post is that organisations - and therefore enterprise IT - are entering a period of fragmentation as unbundling occurs.  In future posts I’ll look at the potential effects of such fragmentation before going on to talk about the resulting future landscape from a business and IT perspective.

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Elements of the Future Business Ecosystem - Introduction

I’ve been working to a model over the last year that considers how the emergence of SOA, web 2.0 and SaaS/Managed Services will change the way in which businesses are composed and executed.  In order to address the timeless question of ‘how to start’ I’ve decided to pull my thoughts together here into a series of posts that address the thinking I’ve been doing.  I’ll start with some of the key drivers that I feel are pushing us towards a sea-change in business models before going on to give my views on how the resulting shake out will coalesce.

Some of the key themes I’d like to highlight are:

• The importance of thinking about ’services’ and ’service provision’ at the business level and not just at the technology level; to me SaaS (and indeed managed services) are just a subset of the real emerging trend (i.e. the outsourcing of business capabilities to more specialised and focused providers);
• The increasing commoditisation and ‘infrastructural’ nature of technology - as we’re able to express business capabilities as consumable services we will increasingly want to buy business results (i.e. measurable outputs) rather than the underlying technology that we would require to create these outputs for ourselves.  This will have serious implications for software and IT service providers (both internal and external); and
• The emergence of the Internet as a global service delivery platform and the resulting disaggregation of business types into those concentrating on specialised services, those concentrating on infrastructural capabilities and relationship enablement and those concentrating on helping service providers to be as effective as possible.  I call these businesses ‘Service Providers’, ‘Service Aggregators’ and ‘Enterprise Integrators’.

The challenge for CIOs and their IT departments - as well as for IT service companies like mine - is to recognise the shifts occurring in the market and to remain relevant by helping our business colleagues source and integrate appropriate services from specialised external providers at the time of actual need.  This increased level of abstraction is going to be a tough journey for many IT professionals given an ability to buy technology and services on a results basis. Hopefully I can give some pointers during the current series of posts to the way in which I believe these changes will play out and how IT stakeholders in particular can position themselves for the future.

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