Sunday, June 25, 2006

Transcript of Dana Gardner's BriefingsDirect Podcast with Executives from Hewlett-Packard on the Business Case for SOA

This is a transcript of HP-sponsored BriefingsDirect podcast with Dana Gardner, recorded June 7, 2006.

Listen to the podcast here.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect[TM]. Today, a high-level discussion, not on the technology of Services Oriented Architecture (SOA), but on the business case -- the business issues: What's driving major enterprises to embrace SOA?

Joining us today are two SOA executives from Hewlett-Packard’s (HP’s) Consulting and Integration Division, Terri Bennett Schoenrock, the executive director of SOA services and consulting integration and J2EE open source programs, as well as Andrew Pugsley, worldwide lead for SOA service development. Thanks for joining us.

Terri Bennett Schoenrock: Thanks Dana, it’s great to be here.

Andrew Pugsley: Thanks Dana.

Gardner: Now, you two do quite a bit of traveling. You are out with folks in the field, customers and enterprises. What are some of the latest and greatest issues -- from a business development perspective -- that companies are focused on when it comes to the decision around moving to SOA? Why don’t we start with you Terri?

Schoenrock: HP and its customers believe that SOA is as much about business transformation as it is about IT transformation. SOA’s adoption is pervasive. Customers are seeing methodologies, tools, and applications changing to adopt SOA concepts and architectures. Business people are reading about SOA in trade journals and business publications, in stock market valuations for their companies, for our companies, and for other companies.

People, processes, and technologies across the enterprise are changing to adopt SOA transformational approaches. What we are seeing is that SOA is transforming business today. It’s about removing barriers between business and IT, and it's about the maturing of organizations, as businesses change and move farther into the new millennium.

Gardner: This SOA transformation involves so many different things: organization, culture, technology, and business process. I keep hearing customers ask: "How do I get started, how do I move from a pilot level into an enterprise-wide level?" Do you get those questions as well?

Schoenrock: Sure. As we look at SOA adoption -- and we work with a number of firms and a number of different customers -- SOA adoption is going to double year over year for the next five years, at least. More and more, our customers are moving from an enterprise-wide horizontal technology strategy to a strategy that says, "How do I link business and IT? How do I develop projects that help businesses understand -- as I have designed enterprise services for reuse, flexible computing services, and common platforms -- to reduce cost, so that they can be shared, so they’re architected well, etc?"

[They’re asking] how do I drive the business projects that raise the visibility of what I have done at the IT enterprise level, so that the business can begin to recognize a competitive advantage, and begin to really derive the benefit of all of this great work?

Gardner: Andrew, from your perspective -- because this subject is so large, because it's encompassing and complex across so many aspects of an enterprise -- when companies try to factor in cost-benefit analysis, what are the business needs that they are focused on? Is this a maturation and consolidation issue, or is this about becoming more agile and fleet in the marketplace -- or some combination? What are you finding are the major business motivators at this point?

Pugsley: There are a few things, Dana. One of the points I’d like to come back to is that you have made the point quite well that the move, or the transformation, to SOA is not just a technology thing. It involves many different aspects of an enterprise, from the skills these people have, the way this organization is set up, right through to how their supply-and-demand chain is established -- including technology.

One of the first things that we see as being key to successfully adopting SOA is for enterprises to actually take that step of understanding, that this is not just an IT thing. This is something that has benefits right across the enterprise, benefits for both business and IT -- but also requires action and change, for both business and IT.

Coming back to your question now, there are two sides to this coin. One side is this whole notion of consolidation and reuse. We have seen some enterprises that are treating SOA as primarily a vehicle for consolidation. And so, they’ve built a business case around consolidating applications and consolidating service and things like that -- and that’s good. They get a business benefit from that, and they treat the other benefits that SOA brings them as nice-to-haves.

But more and more, we are finding that in today’s rapidly changing business world that you can't treat some of those extra things as nice-to-haves. The need to be agile, the need to be able to identify and respond to change, is critical to not just business success, but to the very survival of organizations.

They need the ability to respond to events that happen, from customers releasing a competitive product, to changes in legislation, to changes in the way the marketplace is treating your goods or services. At the same time, there’s also a need to be part of change and take advantage of opportunities, new technologies, and new ideas that you have.

What we see is that while some organizations are saying, “Yes, we get benefits from consolidation” -- and certainly that’s an important thing to include in their business case – the fundamental benefits to SOA are the benefits that come from being more agile.

Gardner: When you talk about agility in this context, are you talking about the business side of the house being able to tell IT what they want to have happen in terms of a process and exception management, and entering into new markets, and then for IT to react to that? Is this really just getting better communication and execution between a business imperative and an IT function -- or is it larger than that?

Pugsley: That’s part of it. We tend to see or describe that interaction as a move away from how we traditionally talked about business and IT alignment as a kind of a static thing. What we really need to strive for now is business-to-IT synchronization -- alignment on an ongoing basis, so that the IT organization is able to respond or proactively respond to different events that happen.

To go one step further, when we talk about change, there’s this sense that you know there are some changes coming up; you know that you are going to release new products next year. You know that your competitors are merging or something like that. A part of the investment in SOA is not just preparing to make plans for those events that you know are going to happen, but also, to position yourself for those unexpected events, for things that might happen, or that you could imagine -- perhaps are unlikely to happen. But if they did happen would have a huge impact.

One of the tricky things with making a business case for SOA is being able to develop a quantitative basis for making decisions about how you are going to prepare for things that are, at least to some extent, uncertain.

Gardner: Terri, this ability to respond to change, do you have any case studies or examples from folks that you have dealt with -- and I know you probably can't share their names at this point without their permission -- but are there examples of how SOA has already fostered these responses toward a change or a dynamic marketplace?

Schoenrock: There are lot of ways SOA is transforming business today. One of the things that we have seen is the more mature an organization becomes, the harder it is to tell business folk from IT folk. Andrew just alluded to this.

One of the things that we have seen is organizations that become so mature related to SOA that they actually spin off an IT organization into its own subsidiary. The IT folk are now business folk, running their own subsidiary as a business, and supporting not only a whole business, but their own business. That’s really flexible business services -- breaking down the barriers between business and IT, and using SOA not just to remove inflexible business systems, but using SOA to remove inflexible business organizations and business silos, increasing organizational agility and really improving the competitiveness of business.

Another thing we have seen is -- when you take a SOA approach and provide the right enterprise architectural services, SOA services, and structured approach to measuring business and measuring IT – that you can ensure that you have services that are valued by the business and valued by IT. That improves the overall competitiveness of that customer. You can then develop an adaptive enterprise that could then support the change a business needs to become competitive.

[SOA] supports the cost-effective environment that business needs to be competitive, because, in the end, it really is about costs. It's about agility, and it’s about access to the information that businesses need in order to get the right competitiveness. That’s what we’re seeing in our customers: in financial services and in the public sector, where it’s not only about competitiveness.

In the public sector it’s about providing access to both constituents, as well as those who are within public sector organizations, especially those who are on the front line of providing defense and security. In manufacturing, it’s about providing agility, as customer preferences change, as manufacturing cost structures need to be driven down. In the telecommunications consumer area things are changing so quickly.

Gardner: This is interesting. On one hand, SOA is extremely inclusive and affects so much of IT and business, but on the other hand each business has its own history and its own legacy. The approach that they've taken could be entirely unique to them or even widely specific within a vertical. How do you take these overarching benefits of SOA and tailor it into highly individualized organizations, both in terms of their IT legacy, as well as their organizational and cultural legacy. Is SOA so agile that it can be overarching and specific -- I’ll open that up to either of you.

Schoenrock: We have customers who have achieved enormous returns on investment. We have a customer -- a financial services customer -- who has achieved a 201% return on investment. HP itself has achieved enormous return on investment from its own SOA initiatives. We have customers all over the globe.

If you look at the four verticals that we focus the strongest on, they include the financial services industry, and especially retail banking; manufacturing and distribution industries; the public sector; and media entertainment and communications sector. In all of those verticals we see a really balanced portfolio.

It's the same worldwide. We focus in three regions: Asia Pacific and Japan; EMEA, which is Europe, Middle East and Africa; and in the Americas, which is predominantly in Canada, the United States, and a few Latin American countries. We have some very strong focus in Brazil and Mexico and a few other countries very specifically. We see a really good balance across industries and across those countries.

Gardner: But in specific enterprises themselves, not just based on geography or a vertical, but because there’s so much individuality, how do you go in as a consulting and integration division with SOA being this large category, and yet still be able to adjust and deal with various specifics. Is this a technology problem or is this a management problem, and how do you face that?

Schoenrock: Actually, we have wonderful "secret sauce," and Andrew is the owner of the secret sauce, but we have two things that we do that are very specific. One is that we have a process that helps our customers very pragmatically address how to link business and IT. It’s a very quick, very easy, low-risk, high-business value process to assess your SOA.

You pick the services that the business cares about the most and that have the highest business value and business impact and the lowest risk from a technology perspective, so that IT can begin to build credibility. You then begin to build wins with the business, and begin to build increased focus. We add to that, something that HP has that’s very highly differentiated -- and that’s our approach to SOA maturity. To do that, we align that to what we call "domains of SOA." We have eight of them, and I want to hand off to Andrew who can explain this far more articulately than I.

Gardner: Yes, I want to hear about the secret sauce.

Schoenrock: This is absolutely very powerful stuff.

Pugsley: Thanks, Terri. The secret sauce is built around these eight domains. And the eight domains capture this notion that you referred to earlier, Dana. This is about technology, yes, but there is more to it than that. We have domains around business, around people, program management, governance, architecture, operations and management, technology itself, and then supply and demand.

What we do with an organization is to work with them first to understand where they are in terms of their maturity toward adopting SOA in each of those domains. Of course that gives you a picture of where you are today.

The next thing you need to look at is where you need to get to. As you point out, every organization is in a different industry or different marketplace, or geographies. Companies have different investments that they have already made and they have a different history.

What we also have associated with a domain model is a set of SOA value propositions. The task is to take these value propositions and really consider them in the context of the specific enterprise and ask whether this value proposition is valid for this particular enterprise in their context, given their strategy.

And by working through that value proposition across each of the SOA domains, we end up with a picture of where we need to take the enterprise. Of course, knowing where you are and where you need to go gives you some indication of what you need to do, what are the tasks, what does the roadmap look like to get there.

But we don’t stop there, because one of the things that I firmly believe is that SOA can bring value to every enterprise. At the same time, not all parts of an enterprise will benefit necessarily to the same extent. What we do then is to start to apply different types of measurement, where we are measuring the ability of different paths of the business to respond to different events. And we have a continuum of events.

So, there are some events that just about any organization will encounter, there are some that are unique to a particular marketplace or geography. Some will be unique to industries. And then, of course, there will be events that each enterprise in itself is facing because of its unique strategy and position.

What we do is develop a measurement -- for each part of the business -- of its essentially core business process. We identify a metric of how well they are able to respond to change, but we also look at that in the context of how important is it for that part of the industry to respond to change.

For example, with one of the Scandinavian telecom companies we have been working with recently, we see a big contrast in the need to be able to react to change in their wholesale business, as compared to their mobile cell phone business. In the wholesale business, they have a small portfolio of products that change relatively infrequently. And their focus is more about managing their partners and suppliers. In their cell phone business they have a huge array of products. They package those products for the marketplace in different ways constantly, and that’s quite a different picture to manage.

And so, in that particular case, when we want to start targeting our SOA investment, we focus on that cell phone business in the product creation areas -- where we are going to get the biggest bang for your buck. The follow-on benefit from that is, in terms of creating a business case, nothing sells better than success. When you've had that first project, and you've had some real impact, taking that and communicating that through the enterprise significantly eases the ongoing process of creating, developing, and managing the business case going forward.

Gardner: As we look at these cost benefit analyses on an enterprise-by-enterprise basis, are you finding in the field that there's a certain hurdle that they need to overcome at the beginning in terms of quite a bit of investment and quite a bit of inertia that needs to be moved through in terms of cultural shift, change, and transformation? Is there some sort of a payoff tipping point here, where the more you get into SOA, the more business value and the more return on investment you get? Is this linear? What sort of trends do you see in terms of business payback from SOA now?

Schoenrock: If we look at our own story -- and HP has done this for thousands of customers -- but if we look at our own story, we can take a look at the projected cost savings.

The cost savings actually start on implementation. When we look at where we measured return on investments; return on investment actually happened on go-live with our own implementation of our e-business center. Return on investment starts Quarter 1. We doubled our revenues. We halved our transaction processing requirements. We really recognized improvements right away. We achieved $1 million in cost reduction from fraud the first year we went live.

So, a lot of initial cost savings. From a projection standpoint, when we look at just the shared service piece of SOA, we think that we are going to be able to achieve a synergy implementing shared services. And those shared services are shared business services, and the shared services that we’re going to get in a virtualized and managed architecture running those business services.

We are actually projecting, just around our e-business architecture, a shared service synergy and cost savings of $70 million that we are taking out of IT. That’s an amazing amount of cost to remove by 2010. We are actually looking for more than that now, based on some of the other cost savings, but that’s just from that one piece we implemented around SOA.

Gardner: Obviously time is on your side if you get going on this sooner rather than later, particularly if you looking for that return on investment. That’s very interesting. From the perspective of those companies that are forecasting these sorts of returns, what can you offer them in terms of a get-started, get-into-it methodology? Within your organization, how should companies start working with HP, for example, in order to get going on this?

Schoenrock: As a transformation journey to build an adaptive enterprise, it starts with an identification of a key business initiative. We talked about that earlier. We believe that they should start that journey with us in an SOA assessment. We believe they should use our approach to measure SOA maturity and our capability to help them bring the business constituents into their project and really begin to link business and IT initiatives.

Gardner: On this point of getting started, you mentioned the SOA assessment. How long typically does that take? I know it’s going to vary a lot by company and verticals, but for a large enterprise -- what are we are looking at here in terms of creating a real assessment? Is this is a matter of months, weeks, quarters?

Schoenrock: It's a matter of weeks -- probably in the range of four to six weeks, depending on global scope and the scope of the actual assessment.

Gardner: We are just about out of time. I want to pass it off one more time to Andrew. In terms of assessment for those people that perhaps have had their interest piqued here, what is it that you are bringing to the table? Can you actually come out and give them a forecast on savings and business case, and what are the business values that you can provide just from this assessment phase?

Pugsley: One of the things that I point out here is that when you do the assessment our goal is not to come and do the assessment to somebody, but rather to come out and do an assessment with the people from that enterprise.

We work with them to help the organization assess their own situation. That’s very important, because ultimately the people working within that enterprise understand how the business works, they understand all of the spoken, as well as the unspoken, challenges that they are facing.

What we would tend to do, for example, is talk about percentage improvement in time-to-market. From that point, the customers’ organization can then interpret what that would mean for them. What we do is provide a basis for coming out with some final numbers.

But typically, we wouldn’t go quite so far as to give a fixed limit on that. Having said that, there is still that consolidation benefit piece that I mentioned. Often with that, it's quite reasonable to come up with some much firmer numbers, because we have a fairly well-defined methodology for consolidating applications and services. And that’s kind of core business. We come in and often we can give quite a good indication of how much saving would come from that.

On the agility side, it’s more tricky, because you are dealing a lot more with unexpected things. What we tend to do as part of our analysis is look at what are the events that are potentially going to happen, what’s the impact of those events, what’s the cost of the thing, how should they respond to those events, what’s the likelihood of that event occurring. From there, we can build up a picture not unlike risk assessment.

Gardner: It sounds like you would get a payoff from consolidation, a payoff from reduction of redundancy and reuse across services, and that then probably biggest payoff over time is the ability to be agile and fleet -- not only in your expected strategic challenges, but for the unexpected. What seems essential is being able to move quickly in a marketplace, to adjust and adapt [regardless of the challenges].

Pugsley: That’s probably the key. Ultimately, that will be the key benefit that people will get from SOA.

Gardner: Thank you. This has been a discussion on the business case and rationale for the ramp-up around SOA. We have been talking with executives from HP's Consulting and Integration Division, Terri Bennett Schoenrock, the executive director of SOA and J2EE open source programs, and also Andrew Pugsli, worldwide lead for SOA service development.

This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for joining us at BusinessDirect, and thank you to Terri and Andrew.

Schoenrock: Thanks a lot, Dana.

Pugsley: Thank you, Dana.

Listen to the podcast here.

Transcript of Gardner's BriefingsDirect Podcast With Executives from Hewlett-Packard. Copyright Interarbor Solutions, LLC, 2006. All rights reserved.