Building the Internal SOA Marketplace

6 Jun
The Lack of Cost Transparency

One of the drivers for looking towards increased service-orientation is the pursuit of transparency of cost. There are two issues that currently lead to a lack of transparency:

  1. Businesses are not designed as systems and thus we have functional or product based silos that make it difficult to understand the cost of providing business capabilities; and
  2. Implementation processes and supporting IT systems are delivered as individual applications within these mis-aligned business silos, resulting in even greater opacity.

This situation means that most organisations have no idea how much any given process or capability actually costs them and hence no worthwhile metrics to help them improve.

Service-Orientation for Business Design

As I’ve discussed previously, it is interesting to note that the concept of service-orientation has nothing to do with technology but is rather a structural abstraction.  As a result you can use the ideas of loose coupling, defined contracts and quality of service within business design as well as within IT – in fact service-orientation makes no sense when this business context is absent.  Service-orientation thus delivers a coherent method for the structuring of a business as a system, with services offered by business capabilities forming the system elements that are coordinated in the pursuit of value.

Service-based Costing

If we use these concepts to redesign the enterprise as a set of services realised by a combination of people, technology and processes then the costs of a given business service are the combined costs of these elements as they interact to deliver to the specified contract. This means that costs are now available at the business service level; i.e. for each service that the enterprise wishes to use they have a specific cost associated with it. When a number of business services are linked together, the cost of the aggregating service needs to be pitched by the owner at such a level that they can profitably aggregate the consumed services in order to deliver to their contract. 

Procuring Services

The expression of an enterprise as a number of collaborating business capabilities allows the organisation to consider how it procures the necessary functions; one option is to deliver a single service that supports the necessary function for the whole enterprise, a second might be to outsource the execution of the service to a specialised provider, whilst a third could be the use of multiple internal and external providers that compete for individual service fulfillment requests on the basis of cost and quality of service. In reality there are likely to be a variety of models applicable.

Utility Business

In order to enable the final transparency, however, and deliver utility style costs to the enterprise, each business capability owner will need to be able to charge for the usage of their services on a per transaction basis. For example, human resources will need to be able to charge for recruitment, induction or dismissal services. This will enable consuming capabilities within the enterprise to be billed for the specific services that they consume and thus see where their major costs lie. Such a model will enable capability owners to decide whether internal service providers represent a good deal or whether they should look to leverage the services of external specialised providers.  In addition service providers will have clear metrics for the costs that they charge to the rest of the enterprise, a view on the competitiveness of their services and a clear sphere of control within which to innovate in order to increase cost-effectiveness. Some service providers may even begin to charge a markup to reinvest in the improvement of their services rather than simply charge at cost.  In point of fact I believe that this will increasingly be the case (even within a given enterprise), since such a market approach drives the sustainability (or not) of a service by forcing it to be competitive or driving it out of the organisation and into the hands of an external provider.  For those capability owners who do succeed in making the transition, the opportunity will be there for them to offer their capabilities to external partners and grow their services as an independent business, taking advantage of greater economies of scale and scope.

Governing the Utility Business

As we increasingly conceive of an enterprise as a set of business capabilities so the focus of governance moves away from inappropriate concentration on technology and onto the portfolio of services that the enterprise needs to realise its goals.  In this scenario the implementation of business capabilities is wholly federated to the capability owners who have the right to decide how they implement the services that they offer to the rest of the organisation, resulting in a cascading (and greatly simplified) ‘business architecture’ where organisations only scope and govern services at the level at which they consume them, leaving onward decisions within the remit of their service providers.  This might seem to fly in the face of traditional notions of SOA where people bemoan the fact that most organisations are ‘project-centric’ and that there should be less ‘selfishness’ but the fact of the matter is that if we charge people with delivering certain value – and we judge them on their performance -then the natural tendancy of human beings is to exclude anything that is orthogonal to the task at hand.  This means that rather than force people into situations where they come into conflict over differing priorities we need to realign the way in which people are judged – by charging them with the delivery of a service that meets the needs of the organisation as a consumer – whilst giving them total autonomy over how that service is delivered.  This delivers the best of both project and enterprise thinking by more appropriately aligning people’s responsibilities around system boundaries whilst satisfying their need to control their own destiny (this, incidentally, is a subject that was explored more lucidly by Todd Biske here!).  Such a model also helps to remove the tensions traditionally associated with inter-departmental integration – discussed by Joe McKenrick here – by realigning departments around the services that they provide, again moving the focus to system boundaries in place of overlapping hierarchies.

This will be a significant shift away from current, immature models of governance which focus on forcing shared IT services, applications and infrastructure onto business capability owners, thereby locking them into potentially inappropriate solutions and preventing them from changing independently.  In the business capability model we concentrate on discovering and managing those services that have value to the business and rely on market forces to drive capability owners to share (or not) services that can be conceived of and offered by third parties in a way which is monetisable and thus sustainable.  This covers the other points raised by Joe around governance given that the answer to all of the questions about ownership, charging, change, etc. are answered by the fact that there is a commercial (or at least pseudo-commercial) agreement between the consumers and providers of service within the enterprise, again driving a market approach in search of transparency and sustainability.  In either case sustainability is the key concern here, as current notions of reuse based on small granularity services are not sustainable given that they cannot generate sufficient revenue to ensure their own survival whilst they simultaneously place capability owners into lockstep for little value gained.  In this scenario the IT department is essentially levying a tax on the business in order to unfairly prop up a collection of services that result in an inflexible environment for the business capability owners,

Utility Platforms for Utility Business

In order to enable a more sustainable model based on market forces, service realisation platforms will need to demonstrate a number of characteristics:

  1. They must be cost-effective:  As capability owners start to surface the costs that they incur in offering their services, so the cost of the supporting IT systems will come to light.  In many organisations IT has been seen as an unpleasant but necessary evil with the costs dispersed across the organisation in such a way as to make it feel like an ungovernable black hole.  If you suddenly find yourself tasked with delivering a set of services competitively, however, and find that your specific share of the IT costs makes you uncompetitive in doing so you are going to be very concerned.  This will force capability owners to take a long hard look at the costs that they incur and look for ways of reducing IT expenditure.  In this scenario it is likely that they will begin to look at shared platforms from utility computing providers in place of expensive, home grown, inflexible infrastructures and architectures that don’t support them in delivering, robust, monetisable services;
  2. They must support service provision: As well as requiring increased quality and robustness, providing services to consumers requires that there be a host of supporting functions in place, including management, reporting and monetisation.  As a result any service delivery platform  must include the ability to capture complex service events for service level management, audit and metering and billing.  Without such functions service providers will be unable to scalably serve their consumers and ensure that they are invoiced for the functionality that they use.  Current enterprise IT infrastructures (and most middleware products) do not support any notion of service delivery at this level of maturity and thus the likely platforms for such service enablement will be SOA-aware SaaS platforms – like the kind described frequently by Phil Wainewright (for example see his discussion of OpSource here) – delivered either centrally by specialised utility computing providers or within the enterprise data centre by such providers as a special service.
Summary

Service-orientation represents a new way to describe the way in which an enterprise functions. If pursued successfully a service-oriented business design can open the way for increased transparency of costs, greater competition and new business opportunities. Any vendor who wishes to help companies with this transition will need to ensure that they have adequately catered for the needs of service delivery within their SOA platform, however.  Of particular concern are a coherent monetisation strategy along with underlying charging and invoicing capabilities, as I believe that ensuring the provision of monetisable services is the only sustainable way of creating and maintaining a portfolio of business services that are exposed to market drivers and hence forced to be competitive. In addition such a market-led approach introduces more transparent governance, focusing on business capabilities and forcing capability owners to deliver clear and competitive services against which they are judged, hiding the complexity of implementation – where most people try to address governance today – and governing more appropriately on the outputs required.

I think I’ll return to the areas of both governance and sustainability in the near future as I believe that they are areas of significant weakness in most current SOA proposals and thus worthy of further discussion.

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One Response to “Building the Internal SOA Marketplace”

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  1. SOA and Market Forces « IT Blagger 3.0 - August 2, 2007

    […] – and hence SOA – through ensuring that people are charged correctly for their consumption.  As I’ve discussed many times I totally agree with this with one exception; basically I feel that organisations need to get a […]

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