Tuesday, November 13, 2007

BriefingsDirect SOA Insights Analysts Examine Microsoft SOA and Evaluate Green IT

Edited transcript of weekly BriefingsDirect[TM] SOA Insights Edition podcast, recorded October 26, 2007.

Listen to the podcast here.

Dana Gardner: Hello, and welcome to the latest BriefingsDirect SOA Insights Edition, Volume 27. A weekly discussion and dissection of Services Oriented Architecture (SOA) related news and events with a panel of industry analysts, experts and guests.

I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions. We’re joined today by a handful of prominent IT analysts who cover SOA and related areas of technology, business, and productivity.

Topics we're going to discuss this week include the SOA & Business Process Conference held by Microsoft in Redmond, Wash., at which Microsoft announced several product roadmaps and some strategy direction around SOA.

We're also going to discuss issues around "Green SOA." How will SOA impact companies, as they attempt to decrease their energy footprint, perhaps become kinder and gentler to the environment and planet earth, and what SOA might bring to the table in terms of a long-term return on investment (ROI), when energy related issues are factored in?

To help us sort through these issues, we’re joined this week by Jim Kobielus. He is a principal analyst at Current Analysis. Welcome back, Jim.

Jim Kobielus: Hi, Dana. Hello, everybody.

Gardner: We're also joined by Neil Macehiter, principal analyst at Macehiter Ward-Dutton in the UK. Thanks for coming along, Neil.

Neil Macehiter: Hi, Dana. Hi, everyone.

Gardner: Joe McKendrick, an independent analyst and blogger. Welcome back to the show, Joe.

Joe McKendrick: Thanks, Dana, glad to be here.

On Microsoft-Oriented Architecture and the SOA Confab ...

Gardner: Let’s dive into our number one topic today. I call it Microsoft Oriented Architecture -- MOA, if you will -- because what we've been hearing so far from Microsoft about SOA relates primarily to their tools and infrastructure. We did hear this week some interesting discussion about modeling, which seems to be a major topic among the discussions held at this conference on Tuesday, Oct. 30.

It's going to be several years out before these products arrive -- we probably won’t even see data until well into 2008 on a number of these products. Part of the logic seems to be that you can write anywhere, have flexibility in your tooling, and then coalesce around a variety of models or modeling approaches to execute through an über or federated modeling approach that Microsoft seems to be developing. That would then execute or deploy services on Microsoft foundational infrastructure.

I'm going to assume that there is also going to be loosely coupled interoperability with services from a variety of different origins and underlying infrastructure environments, but Microsoft seems to be looking strategically at this modeling layer, as to where it wants to bring value even if it’s late to the game.

Let’s start with Jim Kobielus. Tell us a little bit about whether you view Microsoft's moves as expanding on your understanding of their take on SOA, and what do you make of this emphasis on modeling?

Kobielus: First, the SOA universe is heading toward a model-driven paradigm for distributed service development in orchestration, and that’s been clear for a several years now. What Microsoft has discussed this week at its SOA and BPM conference was nothing radically new for the industry or for Microsoft.

Over time, with Visual Studio and the .NET environment, they've been increasingly moving toward a more purely visual paradigm. "Visual" is in the very name of their development tool. Looking at the news this week from Microsoft on the so-called Oslo initiative, they are going to be enhancing a variety of their Visual Studio, BizTalk Server, BizTalk Services, and Microsoft System Center, bringing together the various metadata repositories underlying those products to enable a greater model-driven approach to distributed development.

Gardner: They get into some BizTalk too, right?

Kobielus: Yes, BizTalk Server for premises-based and BizTalk Services, software as a service (SaaS), the channel through which it can deliver BizTalk functionality going forward. I had to pinch myself and ask myself what year this is. Oh, it’s 2007, and Microsoft is finally getting modeling religion. I still remember in 2003-2004 there was a big up swell of industry interest in model-driven architecture (MDA).

Gardner: We've had some standards developed in the industry since then too, right?

Kobielus: I was thinking, okay, that’s great, Microsoft, I have no problem with your model-driven approach. You're two, three, or four years behind the curve in terms of getting religion. That’s okay. It’s still taking a while for the industry to completely mobilize around this.

In order words, rather than developing applications, they develop business models and technology models to varying degrees of depth and then use those models to automatically generate the appropriate code and build the appropriate sources. That’s a given. One thing that confuses me, puzzles me, or maybe just dismays me about Microsoft’s announcement is that there isn't any footprint here for the actual standards that have been developed like OMG’s unified modeling language (UML), for example.

Microsoft, for some reason I still haven’t been able to divine, is also steering clear of UML in terms of their repositories. I'm not getting any sense that there is a UDDI story here or any other standards angle to these converged repositories that they will be rolling out within their various tools. So, it really is a Microsoft Oriented Architecture. They're building proprietary interfaces. I thought they were pretty much behind open standards. Now, unless it’s actually 2003, I have to go and check my calendar.

Gardner: They did mention that they're going to be working on a repository technology for Oslo metadata, which will apparently be built into its infrastructure services and tools. There was no mention of standards, and part of the conceptual framework around SOA is that there has to be a fairly significant amount of standardization in order to make this inclusion of services within a large business process level of activity possible.

Some of the infrastructure, be it repository, ESB, management, or governance, needs to be quite open. So, you're saying you're not sure that you're seeing that level of openness. It reminds us of the CORBA versus COM and DCOM situation. OMG was involved with that and supported the development of CORBA

Let’s go to Neil Macehiter. Do you see this as MOA or do you think that they are going to have to be open, if it’s going to be SOA values?

Macehiter: I don’t see this as exclusively Microsoft-oriented, by any stretch. I’d also question Jim’s comment on there being nothing radically new here. There are a couple of elements to the strategy that Microsoft’s outlined that differentiate it from the model-driven approaches of the past.

The first is that they are actually encompassing management into this modeling framework, and they're planning to support some standards around things like the service modeling language (SML), which will allow the transition from development through to operations. So, this is actually about the model driven life cycle.

The second element where I see some difference is that Microsoft is trying to extend this common model across software that resides on premises and software that resides in the cloud somewhere with services. So, it has a common framework for delivering, as Microsoft refers to it, software plus services. In terms of the standard support with respect to UML, Microsoft has always been lukewarm about UML.

A few years ago, they were talking about using domain specific language (DSL), which underpin elements of Visual Studio that currently exist, as a way of supporting different modeling paradigms. What we will see is the resurgence of DSL as a means of enabling different modeling approaches to be applied here. The comment regarding UDDI is only one element at the repository, because where Microsoft is really trying to drive this is around a repository for models, for an SML model or for the models developed in Visual Studio, which is certainly broader.

Gardner: There really aren’t any standards for unifying modeling or repository for various models.

Macehiter: No, so this smacks of being a very ambitious strategy from Microsoft, which is trying to pull together threads from different elements of the overall IT environment. You've got elements of infrastructure as a service, with things like the BizTalk Services, which has been the domain of large Web platforms. You've got this notion of computer applications in BPM which is something people like IBM, BEA, Software AG, etc. have been promoting.

Microsoft has got a broad vision. We also mustn’t forget that what underpins this is the vision to have this execution framework for models. The models will actually be executed within the .NET framework in the future iteration. That will be based on the Window’s Communication Foundation, which itself sits on top of the WS-* standards and then also on top of Windows Workplace Foundation.

So, that ambitious vision is still some way off, as you mentioned -- beta in 2008, production in 2009. Microsoft is going to have to bring its ISVs and systems integrator (SI) community along to really turn this from being an architecture that's oriented towards Microsoft to something broader.

Gardner: Now, Neil, if Microsoft is, in a sense, leapfrogging the market, trying to project what things are going to be several years out, recognizing that there is going to be a variety of modeling approaches, and that modeling is going to be essential for making SOA inclusive, then they are also going to be federating, but doing that vis-à-vis their frameworks and foundations.

If there is anything in the past that has spurred on industry standards, it's been when Microsoft puts a stake in the ground and says, “We want to be the 'blank,'” which, in this case, would be the place where you would federate models.

Kobielus: I’m glad you mentioned the word "federation" in this context, because I wanted to make a point. I agree with Neil. I’m not totally down on what Microsoft is doing. Clearly, they had to go beyond UML in terms of a modeling language, as you said, because UML doesn’t have the constructs to do deployment and management of distributed services and so forth. I understand that. What disturbs me right now about what Microsoft is doing is that if you look at the last few years, Microsoft has gotten a lot better when they are ahead of standards.

When they're innovating in advance of any standards, they have done a better job of catalyzing a community of partners to build public specs. For example, when Microsoft went ahead of SAML and the Liberty Alliance Federated Identity Standards a few years back, they wanted to do things that weren't being addressed by those groups.

Microsoft put together an alliance around a spec called WS-Federation, which just had sort of hit-and-miss adoption in the market, but there has been a variety of other WS-* standards or specifications that Microsoft has also helped to catalyze the industry around in advance of any formal, de-jure standard. I'd like to see it do the same thing now in the realm of modeling.

Macehiter: My guess is that’s exactly what they’re doing by putting a stake in the ground this early. "This is coming from us. There are going to be a lot of developers out there using our tools that are going to be populating our repositories. If you're sensible, you're going to federate with us and, therefore, let’s get the dialogue going." I think that’s partly why the stake is out there as early as it is.

Gardner: Let’s go to Joe McKendrick, Joe, we've seen instances in the past where – whether they're trailing or leading a particular trend or technology -- Microsoft has such clout and influence in the market that they either can establish de-facto standards or they will spur others to get chummy with one another to diminish the Microsoft threat. Do you expect that Microsoft's saying they're going to get in the modeling federation and repository business will prompt more cooperation and perhaps a faster federated standard approach in the rest of the market?

McKendrick: Definitely more and more competitive responses. Perhaps you’ll see IBM, BEA, Oracle, or whatever other entity propose their own approaches. It's great that Microsoft is talking SOA now. It's only been about a year that they have really been active.

Gardner: They didn’t even want to use the acronym. Did they?

McKendrick: I think what's behind this is that Microsoft has always followed the mass market. Microsoft’s sweet spot is the small- and the medium-business sector. They have a presence in the Fortune 500, but where they’ve been strong is the small to medium businesses, and these are the companies that don’t have the resources to form committees and spend months anguishing over an enterprise architectural approach, planning things out. They may be driven by the development department, but these folks have problems that they need to address immediately. They need a focus and to put some solutions in place to resolve issues with transactions, and so forth.

Gardner: That’s interesting, because for at least 10 years Microsoft has had, what shall we say, comprehensive data center envy. They've seen themselves on a department level. They've been around the edges. They've had tremendous success with the client and productivity applications with some major components, including directory and just general operating system level to support servers, and, of course, their tools and the frameworks.

However, there are still very few Fortune 500 or Global 2000 companies that are pure Microsoft shops. In many respects, enterprise Java, distributed computing, and open-standards approaches have dominated the core environment in architecture for these larger enterprises. If Microsoft is going to get into SOA, they're in a better position to do what we’ve been calling Guerrilla SOA, which is on a project-by-project basis.

If you had a lot of grassroots, small-developer, department-level server-oriented activities that Microsoft infrastructure would perhaps be better positioned to be dominant in, then that’s going to leave them with these islands of services. A federated modeling level or abstraction layer would be very fortuitous for them. Anyone have any thoughts about the comprehensive enterprise-wide SOA approach that we have heard from others vendors, versus what Microsoft might be doing, which might not be comprehensive, but could be in a sense grassroots even within these larger enterprise.

Macehiter: The other vendors in the non-Microsoft world might talk about enterprise-wide SOA initiatives and organizations that are planning to adopt SOA on an enterprise-wide basis, based on their infrastructure. The reality is that the number of organizations that have actually gone that far is still comparatively small, as we continually see with the same case-study customers being reintroduced again and again.

Microsoft will have to adopt an alternative model. For example, I think Microsoft will follow a similar model and explore the base they had around the developer community within organizations with things like Visual Studio.

SQL Server is pretty well deployed in enterprise elements of the application platform, by virtue of their being bundled into the OS already. So, they're quite well-positioned to address these departmental opportunities, and then scale out.

This is where some of the capabilities that we talked about, particularly in combination with things like BizTalk Services, allow organizations to utilize workflow capabilities and identity management capabilities in the cloud to reduce the management overhead. The other potential route for Microsoft is through the ISV community.

Gardner: I suppose one counterpoint to that is that Microsoft is well positioned with it's tools, frameworks, skill set, and entrenched positions to be well exploited for creating services, but when it comes to modeling business processes, we're not really talking about a Visual Studio-level user or developer. Even if the tools are visually oriented, the people or teams that are going to be in a position to construct, amend, develop, and refine these business processes are going to be at a much higher level. They're going to be architects and business analysts. They're going to be different types of persons.

They are going to be people who have a horizontal view of an entire business process across the heterogeneous environments and across organizational boundaries. Microsoft is well positioned within these grassroots elements. I wonder if they can, through a modeling federation layer and benefit, get themselves to the place where they are going to be the tools and repository for these analysts and architect level thinkers.

Kobielus: I think they will, but they need to play all this Oslo technology into their dynamics strategy for the line of business applications. The analysts that operate in the dynamics world are really the business analyst, the business process re-engineering analysts, etc., who could really use this higher layer entity modeling environment that Microsoft is putting there. In other words, the analysts we are discussing are the analysts who work in the realm of the SAP or Oracle applications, or the dynamic applications, not the departmental database application developers.

Macehiter: The other community there would be the SIs, who do a lot of this work on behalf of organizations. As part of the Oslo messaging, Microsoft has talked about this sort of capability being much more model-driven than a high level of abstraction, as a means to allow SOAs to become more like all ISVs, in terms of delivering more complete solutions. That’s another key community, where Microsoft just doesn't compete, in contrast to IBM, which is competing directly with the likes of Accenture and CapGemini. That’s another community that Microsoft will be looking to work very closely with around this.

Gardner: In the past, Microsoft did very well by targeting the hearts and minds of developers. Now, it sounds like they are going to be targeting the hearts and minds of business analysts, architects, and business-process level oriented developers. Therefore, they can position themselves as a neutral third party in the professional services realm. They can try to undermine IBM’s infrastructure and technology approach through this channel benefit of working with the good tooling and ease of deployment at the modeling and business-process construct level with these third-party SIs. Is that it?

McKendrick: As an addendum to what you just said, Microsoft isn't necessarily going to go directly after customers of IBM, BEA, etc. IBM is providing this potential to companies that have been under-served, companies that cannot afford extensive SOA consulting or integration work. It's going after the SMB sector, the Great Plains, the dynamics application that Jim spoke of. Those are SMB application. The big companies will go to SAP.

Gardner: So, Microsoft could have something that would be a package more amenable to a company, of say, 300-to-2,000 seats, maybe even 300-to-1,000.

McKendrick: Exactly, Microsoft is the disrupter in this case. There are other markets where Microsoft is being disrupted by Web 2.0, but in SOA, Microsoft is playing the role of disrupter and I think that’s what their strategy is.

Kobielus: I want to add one last twist here. I agree with everything Joe said. Also, the Oslo strategy, the modeling tools, will become very important in Microsoft’s overall strategy for the master data management (MDM) market they have announced already. A year from now, Microsoft will release their first true MDM product that incorporates, for example, the hierarchy and management and cross-domain catalog, management capabilities from their strategic acquisitions.

What Microsoft really needs to be feature-competitive in the MDM market is a model-driven, visual business-process development and stewardship tool. That way teams of business and technical analysts can work together in a customer data-integration, product information-management, or financial consolidation hub environment to build the complex business logic into complex applications under the heading of MDM. If Microsoft's MDM team knows what they are doing and I assume they do, then they should definitely align with the Oslo initiative, because it will be a critical for Microsoft to compete with IBM and Oracle in this phase.

Gardner: As we've discussed on this show, the whole data side of SOA in creating common views, cleaning and translating, schemas and taxonomies, and MDM is extremely important. You can’t do SOA well, if you don’t have a coherent data services strategy. Microsoft is one of the few vendors that can provide that in addition to many of these other things that we're discussing. So, that’s a point well taken. Now, to Joe’s point about the SMB Market, not only would there be a do-it-yourself, on-premises approach to SOA, but there are also SaaS and wire-based approaches.

We've heard a little bit about a forthcoming protocol -- BizTalk Services 1 -- and that probably will relate to Microsoft's Live and other online-based approaches. The end user, be they an architect and analyst or someone who is going to be crafting business processes, if they're using a strictly Web-based approach, they don’t know or care what’s going on beneath the covers in terms of foundations, frameworks, operating systems, and runtime environments. They are simply looking for ease of acquisition and use productivity-scale reliability.

It strikes me that Microsoft is now working towards what might be more of a Salesforce.com, Google, or Amazon-type environment, where increasingly SOA is off the wire entirely. It really is a matter of how you model and tool those services that becomes a king maker in the market. Any thoughts on how Microsoft is positioning these products for that kind of a play?

Macehiter: Definitely. The software plus services, which is the way that Microsoft articulates this partitioning of capability between on-premise software and services delivered in the cloud, is definitely a key aspect of the Oslo strategy and BizTalk Services. It’s just one element of that.

For example, if an organization needs to do some message flow that crosses between organizations over the firewall, BizTalk Services will provide a capability that allows you to explore that declaratively. You can see that evolving, but that’s more infrastructure services. Clearly, another approach might be a high-level service, an application type service, and this architecture that Microsoft is talking about is attempting to address that as well.

This is definitely a key element of the story, which is about making sure that Microsoft remains relevant in the face of in an increasing shift, particularly in the SMB market, towards services delivered in the cloud. It’s about combining the client, the server and services, and providing models in terms the way you think about the applications you need and in terms of the way you manage and deploy them that can encompass that in a way that doesn’t incur significant effort.

Gardner: Perhaps the common denominator between the on-premises approach -- be it departmental level, enterprise-wide, SMB, through the cloud, or though an ecology of providers -- is at this modeling layer. This is the inflection point where, no matter how you do SOA, you’re going to want to be in a position to do this well, with ease, and across a variety of different approaches. Is that fair?

Macehiter: Yes. That’s why this is a better attempt by Microsoft to change the game and push the boundaries. It’s not just a model-driven development revisited in a NDI and a .NET world. This is broader than that.

Gardner: This is classic Microsoft strategy, leapfrogging and trying to get to what the inflection point or the lock-in point might be, and then rushing to it and taking advantage of its entrenched positions.

McKendrick: Forming the mass market, exactly.

Gardner: Let’s move on to our next subject, now that we’ve put that one to rest. The implications are that Microsoft is not out of the SOA game, that it's interested in playing to win, but, once again, on its own terms based on its classic market and technology strategies.

McKendrick: And reaching out to companies that could not afford SOA or comprehensive SOA, which it's done in the past.

On Green SOA and the IT Energy-Use Factor ...

Gardner: Let’s move on to our new subject, Green SOA. SOA approaches and methodologies bring together abstractions of IT resources, developing higher level productivity through business process, management, organization, and governance. How does that possibly impact Green IT?

It's a very big topic today. In fact, it was the top of the strategic technology areas that Gartner Group identified for 2008. Green IT was named number one, a top-ten strategic technology area. How does SOA impact this? Jim Kobielus, you have been given this a lot of thought. Give us the lay of the land.

Kobielus: Thank you, Dana. Clearly, in our culture the Green theme keeps growing larger in all of our lives, and I'm not going to belabor all the ramifications of Green. In terms of Green, as it relates to SOA, you mentioned just a moment ago, Dana, the whole notion of SOA is based on abstraction, service contracts, and decoupling of the external calling interfaces from the internal implementations of various services. Green smashes through that entire paradigm, because Green is about as concrete as you get.

SOA focuses on maximizing the sharing, reuse, and interoperability of distributed services or resources, application logic, or data across distributed fabrics. When they're designing SOA applications, developers aren't necessarily incentivized, or even have the inclination, to think in terms of the ramifications at the physical layer of these services they're designing and deploying, but Green is all about the physical layer.

In other words, Green is all about how do human beings, as a species, make wise use and stewardship of the earth’s nonrenewable, irreplaceable resources, energy or energy supplies, fossil fuels, and so forth. But also it’s larger than that, obviously. How do we maintain a sustainable culture and existence on this planet in terms of wise use of the other material resources like minerals and the soil etc.?

Gardner: Isn't this all about electricity, when it comes to IT?

Kobielus: Yes, first and foremost, it’s pitched at the energy level. In fact, just this morning in my inbox I got this from IBM: "Join us for the IBM Energy Efficiency Certificate Announcement Teleconference." They're going to talk about energy efficiency in the datacenter and best practices for energy efficiency. That’s obviously very much at the core of the Green theme.

Now, getting to the point of how SOA can contribute to the greening of the world. SOA is the whole notion of consolidation -- consolidation of application logic, consolidation of servers, and consolidation of datacenters. In other words, it essentially reduces the physical footprint of the services and applications that we deploy out to the mesh or the fabric.

Gardner: Aren't those things independent of SOA? I mean, if you're doing datacenter consolidation and modernization, if you are moving from proprietary to standards-based architectures, what that has got to do with SOA?

Kobielus: Well, SOA is predicated on sharing and reuse. Okay, your center has a competency. You have one hunk of application logic that handles order processing in the organization. You standardize on that, and then everybody calls that, invokes that over the network. Over time, if SOA is successful other centers of development or other deployed instances of code that do similar things will be decommissioned to enable maximum reuse of the best-of-breed order-processing technology that’s out there.

As enterprises realize the ROI, the reuse and sharing should naturally lead to greater consolidation at all levels, including in the datacenter. Basically, reducing the footprint of SOA on the physical environment is what consolidation is all about.

Gardner: So, these trends that are going concurrently -- unification, consolidation, and virtualization -- allow you to better exploit those activities and perhaps double down on them in terms of a fewer instances of an application stack, but more opportunity to reuse the logic and the resources more generally. So a highly efficient approach that ultimately will save trees and put less CO2 in the atmosphere.

Kobielus: I want to go back to Microsoft. Four years ago, in 2003, I went to their analyst summit in Redmond. They presented something they called service definition modeling language (SDML) as proprietary spec and a possible future spec for modeling services and applications at the application layer and physical layer. An application gets developed, it gets orchestrated, it gets distributed across different nodes, and it allows you to find the physical partitioning of that application across various servers. I thought:

That’s kind of interesting. They are making a whack at both trying to model from the application down to the physical layer and think through the physical consequences of application development activities.

Gardner: Another trend in the market is the SaaS approach, where we might acquire more types of services, perhaps on a granular level or wholesale level from Google, Salesforce, Amazon, or Microsoft, in which case they are running their datacenters. We have to assume, because they're on a subscription basis for their economics, that they are going to be highly motivated toward high-utilization, high-efficiency, low-footprint, low-energy consumption.

That will ultimately help the planet, as well, because we wouldn’t have umpteen datacenters in every single company of more than a 150 people. We could start centralizing this almost like a utility would. We would think that these large companies, as they put in these massive datacenters, could have the opportunity for a volume benefit in how they consume and purchase energy.

Gardner: Neil Macehiter, what do you make of this Green-SOA relationship?

Macehiter: We need to step back and look at what we are talking about. You mentioned ROI. If we look at this from a Green ROI perspective, organizations are not going to be looking at SOA as the first step in reducing their Green footprint. It's going to be about server and storage consolidation to reduce the power consumption, provide more efficient cooling, and management approaches to ensure that servers aren’t running when they don’t need to be. That’s going to give them much bigger Green bang for the buck.

Certainly, the ability to reuse and share services is going to have an impact in terms of reducing duplications, but in the broader scheme of things I see that contribution as being comparatively small. The history that we have is largely ignoring the implications of power and heat, until we get to the size of a Google or a Microsoft, where we have to start thinking about putting our datacenters next to large amounts of water, where we can get hydroelectric power.

So, IT has a contribution to make, but there isn't anything explicit in SOA approaches, beyond things like service reuse and sharing that can really contribute. The economies of scale that you get from SaaS in terms of exploiting those services come from more effective use of the datacenter resources. This is those organizations' business, and, given the constraints they operate under, they can’t get datacenters big enough, because then there are no power stations big enough.

Gardner: Your point is well taken. Maybe we're looking at this the wrong way. Maybe we’ve got it backwards. Maybe SOA, in some way, aids and abets Green activities. Maybe it's Green activities, as they consolidate, unify, seek high utilization, and storage, that will aid and abet SOA. As Gartner points out, in their number one strategic technology area for 2008, Green initiatives are going to direct companies in the way that they deploy and use technology towards a situation where they can better avail themselves of SOA principles. Does that sound right, Joe McKendrick?

McKendrick: In an indirect way, it sounds right, but I want to take an even a further step back and look at what we have here. Frankly, the Green IT initiative is misguided and the wrong questions are being asked about Green IT. Let me say that I have been in active environmental causes and I have done consulting work with a company that has worked with utilities and ERP Electric Car Research Institute on energy saving initiatives.

It's great that IT is emphasizing efficient datacenters, but what we need to look at is how much energy IT has saved the world in general? How much power is being saved as a result of IT initiatives? SOA rolls right into this. For example, how many business trips are not being taken now, because of the availability of video conferencing and remote telecommuting, telework and things of that sort? We need studies. I don’t have the data on this and there isn’t any data out there that has really tracked this. In e-commerce, for example, how many stores have not been built because of e-commerce?

Gardner: These are really good points that the overall amount of energy consumption in the world would be much greater and productivity. It's very difficult to put all the cookie crumbs together and precisely measure the inputs and outputs, but that’s not really the point. We're not talking about what we would have saved, if we didn’t have IT for saving. What can we do to refine even further that what which we have to use to create the IT that we have?

Macehiter: The reality is that we can’t offset what we’ve saved in the past against what we are going to conceive in the future. We are at a baseline and it is not about apportioning blame between industries and saying, "Well, IT doesn’t have to do so much, because we’ve done a lot in the past."

McKendrick: But, we are putting demands on IT, Neil. We're putting a lot of demands on IT for additional IT resources.

Macehiter: If you go into a large investment bank, and look at what proportion of their electricity consumption is consumed by IT, I'd hazard a guess that it's a pretty large chunk, alongside facilities.

McKendrick: And probably lots of demands are put on those datacenters, but how much energy is that saving because of additional services being put out to the world, being put out to society?

Gardner: What's your larger point, Joe, that we don’t need to worry too much about making IT more energy efficient because it's already done such a great job compared to the bricks-and-mortar, industrialized past?

McKendrick: The problem is, Dana, we don’t know. There are no studies. I'd love to see studies commissioned. I'd love to see our government or a private foundation fund some studies to find out how much energy IT has been saving us.

Kobielus: I agree with everything you guys are saying, because the issue is not so much reducing IT’s footprint on the environment. It’s reducing our species' overall footprint on the resources. One thing to consider is whether we have more energy-efficient datacenters. Another thing to consider is that, as more functionality gets pushed out to the periphery in terms of PCs and departmental servers, the vast majority of the IT is completely outside the datacenter.

Gardner: Jim, you are really talking about networked IT, so it's really about the Internet, right? The Internet has allowed for a "clicks in e-commerce" and not a "bricks in heavy industries" approach. In that case, we're saying it's good that IT in the Internet has given us the vast economies of scale, productivity, and efficiency, but that also requires a tremendous amount of electricity. So, isn’t this really an argument for safe nuclear and to put small nuclear reactor next to datacenters and perhaps not create CO2?

Macehiter: Let's not forget that this isn't just about enterprise use of IT. If I look at my desk, as a consumer of IT, I've got a scanner, hard disk, two machines, screen, two wireless routers, and speakers that are all consuming electricity. Ten years ago, I just wouldn’t have had that. So, we have to look broader than the enterprise. We can get into a whole other rat’s nest, if we start into safe nuclear power or having wind farms near our datacenter.

Gardner: It's going to be NOA, that’s Nuclear-Oriented Architecture…

Kobielus: In the Wall Street Journal this morning, there was an article about Daylight Saving Time. This year, in the US, Daylight Saving Time has been moved up by a week at the beginning in March and moved back by a week into November. So, this coming Sunday, we are going to finally let our clocks fall back to so-called Standard Time.

The article said that nobody has really done a study to show whether we are actually saving any energy from Daylight Saving Time? There have been no reliable studies done. So, when the legislatures change these weeks, they're just assuming that, by having more hours of daylight in the evening, we are using less illumination, therefore the net budget or net consumption of energy goes down.

In fact, people have darker mornings, and people tend to have more morning-oriented lives. People in the morning quite often are surfing the Web, and viewing the stuff on their TiVo, etc. So, net net, nobody even knows with Daylight Saving Time whether it's Green friendly, as a concept.

Gardner: Common sense would lead you to believe that you’re just robbing Peter to pay Paul on this one, right? Perhaps there are some lessons to be learned on that same level for IT. We think we're saving footprints in data centers and we are consolidating and unifying, but we are also bringing more people online and they have larger energy-consuming desktop environments or small-office environments that Neil described. If there are 400 million people with small offices and there are a billion people on the Internet, then clearly the growth is far and away outstripping whatever efficiencies we might bring to the table.

McKendrick: The efficiencies gained by IT might be outstripping any concerns about green footprints with datacenters. We need data. We need studies to look at this side of it. The U.S. Congress is talking about studying the energy efficiency of datacenters, and you can imagine some kind of regulations will flow from that.

Kobielus: I'm going to be a cynic and am just going to guess that large, Global 2000 corporations are going to be motivated more by economics than altruism when it comes to the environment. So back to the announcement today, on Nov. 2, about IBM launching an initiative to give corporate customers a way to measure and potentially monetize energy efficient measures in their datacenters.

I think IBM is trying to come up with the currency of sorts, a way to earn energy-efficient certificates that can then apply some kind of an economic incentive and/or metric to this issue. As we discussed earlier, the Green approach to IT might actually augment SOA, because I don’t think SOA leads to Green, but many of the things you do for Green will help people recognize higher value from SOA types of activities.

Gardner: Let's leave it at that. We're out of time. It's been another good discussion. Our two topics today have been the Microsoft SOA conference and abstract relationship between Green IT and SOA. We have been joined with our great thinkers and fantastic contributors here today including Jim Kobielus, principal analyst at Current Analysis. Thanks, Jim.

Kobielus: Thank you, Dana. I enjoyed it as always.

Gardner: Neil Macehiter, principal analyst at Macehiter Ward-Dutton. Thanks, Neil.

Macehiter: Thanks, Dana. Thanks, everyone.

Gardner: And, Joe McKendrick, the independent analyst and blogger extraordinaire. Thanks, Joe.

McKendrick: Thanks, Dana. It was great to be here.

Gardner: This is Dana Gardner, principal analyst at Interarbor Solutions. You’ve been listening to BriefingsDirect SOA Insights Edition, Volume 27. Come back again next time. Thank you.

Listen to the podcast here.

Produced as a courtesy of Interarbor Solutions: analysis, consulting and rich new-media content production.

If any of our listeners are interested in learning more about BriefingsDirect B2B informational podcasts or to become a sponsor of this or other B2B podcasts, please fill free to contact Interarbor Solutions at 603-528-2435.

Transcript of BriefingsDirect SOA Insights Edition podcast, Vol. 27, on Microsoft SOA and Green IT. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.

Thursday, November 01, 2007

UPS to Debut New Customs Clearance and International Returns Solutions for Small Businesses

Edited transcript of BriefingsDirect[TM] podcast with Laurel Delaney of GlobeTrade.com, Stu Marcus of UPS, and Scott Aubuchon of UPS on new ways of simplifying international shipping and commerce.

Listen to the podcast here. Sponsor: UPS. Learn more about the solutions described in this discussion at http://www.ups.com/simplify.

Dana Gardner: Hi, this is Dana Gardner, principal analyst at Interarbor Solutions, and you’re listening to BriefingsDirect. Today, we present a sponsored podcast discussion about the new opportunities for small- and medium-size businesses (SMBs) to take advantage of overseas markets for their goods. The Internet has opened up many channels for sales and marketing, but there still needs to be the physical delivery of the goods.

We’re going to talk about customs clearance and some new efficiencies and digitization opportunities there. We’re also going to look at the flip side, of how returns are handled for goods and materials that are crossing borders, and how that can be managed and made more efficient.

Joining us to discuss this, we have an expert and researcher on these issues, Laurel Delaney. She is the founder and president of GlobeTrade.com. Welcome to the show, Laurel.

Laurel Delaney: Thank you for having me.

Gardner: We’re also going to discuss this with Stu Marcus. He is a director of new product development at UPS. Welcome, Stu.

Stu Marcus: Hi, Dana, thanks.

Gardner: Also joining us is Scott Aubuchon. He is also a director of new product development at UPS. Welcome, Scott.

Scott Aubuchon: Thanks, Dana. Thanks for having me.

Gardner: Let’s start with Laurel. Help us understand some of the issues facing small businesses, those seeking to expand their addressable markets and how they can start doing more business overseas.

Delaney: Actually, there are two forces at work right now for small businesses. One has to do with the issue of globalization. I think we all know the buzz that’s going on about going global that has been driven largely by Thomas Friedman with his book, "The World is Flat." He’s caused mainstream America and all small businesses to step up to the plate and consider the world as your market. The second force is technology, and technology is making it easier now to go global.

Gardner: So we have the opportunity, yet we still have the physical barriers. Let’s take another look at this through the lens of some other trends. There is the North America Free Trade Agreement (NAFTA), the Central America Free Trade Agreement (CAFTA), and the World Trade Organization (WTO) measures.

Have borders become more open or less open -- because we’re also talking about the post 9/11 era?

Delaney: NAFTA, CAFTA, and the WTO have absolutely enabled small businesses to go global far more easily. They've removed barriers, eliminated tariffs, and have softened the rules a bit for doing business internationally.

Gardner: Has the consolidation of currencies in Europe and also the value of the dollar in relation to other currencies made the desire for SMBs to look across their borders more financially interesting?

Delaney: It depends on who you are. What I mean by that is, if you're a Wal-Mart shopper, many of the products are made in China. The Yuan [China’s currency] is tied to our dollar, so there is very little effect on the price of goods. But if you are a worker at a Boeing plant, for example, a weaker dollar really means that foreigners can buy more of what you make.

If you’re an American tourist and you're vacationing in Paris, your dollar buys fewer Euros right now. So you’d probably end up spending $7 for a cup of coffee, or even $50 for a taxi ride.

A weak dollar can be good for the U.S. economy, though, because it makes American exports cheaper and therefore helps close the trade deficit.

Gardner: Let’s open this up to Stu and Scott. UPS recognizes a growing international opportunity here, and has created some services to help companies better deliver and return goods. What is it that prompted you to pursue this potential growth?

Aubuchon: As Laurel said, we've really seen the world become flat. International shipping is at an all-time high. The Internet is making it easier for SMBs to trade internationally. Many of the free-trade agreements have helped, as well. But there’s still a lot of complexity involved in shipping across borders, and that’s something that we at UPS are very interested in helping our customers deal with and overcome.

Gardner: What are the problems or hurdles that are preventing SMBs from looking to do business -- increasingly more business -- overseas?

Aubuchon: One common problem for everyone that ships internationally is just the documentation that’s required and associated with international shipping. For example, when you ship a package domestically, you simply put on an address label and off it goes.

For anything that’s not a document or a letter moving internationally, a commercial invoice is required to go with that shipment, in order to define what is contained in the shipment. So, for example, if you were shipping a cotton shirt, you’d need to document what type of shirt it is, where it was made, and what the fabric is. That process can be fairly complex and somewhat daunting, especially to folks who don’t do a lot of international shipping.

Gardner: How has this process changed in recent years, since 9/11, since the war on terror in the United States, and its active homeland security activities? Has it become easier, harder, or more complex? What’s been the change in the last five or six years?

Aubuchon: I am not sure I would say it’s become harder, but there’s definitely been a shift in emphasis. As we talked about, there have been a lot of free-trade agreements put in place, but the focus on international shipping has moved away from duty and tax to more of a security picture.

Back in the United States, the U.S. Customs Bureau used to be part of the Treasury Department. It’s now called U.S. Customs and Border Protection, and it’s part of the homeland security function.

So even though there’s freer trade, the documentation required for trade security purposes is still very important, and may be more important than ever. This is why at UPS we think helping customers with that documentation and the complexities of international shipping is a very important step for us to take.

Delaney: I want to add to that. U.S. Customs and Border Protection are scary words to a small business owner. The whole idea of simplifying the process is important, so that small businesses can go after this in a fearless fashion.

Gardner: All right. Let’s move into some of the solutions. If I am a SMB, and I have some robust growth, I recognize that the currencies are working in my favor, and I recognize that the Internet is giving me the opportunity to market -- to gather orders and process them across borders very easily at low cost -- how do I take the next step? What are some new solutions for customs clearance?

Aubuchon: One thing UPS is doing to help change the face of global shipping is to be first to market with a solution called UPS Paperless Invoice. This enables our customers to provide us with electronic data defining what’s in the international shipment -- that would be the commercial invoice data -- and provide that seamlessly and electronically, so that we can transmit it and use it for clearance on the other end. This eliminates the need for the customer to print and manually apply three copies of that document to each shipment.

Gardner: Explain in a little bit more detail how that works. Is this completely paperless, or is it streamlined? Walk us through the process, please.

Aubuchon: From the customer's perspective it really is completely paperless. They can take the data regarding the commodities they're shipping and either apply it within, or connected to, their shipping system. Then, when they prepare the shipment, they simply designate the commodities that are in the shipment, transmit that information with the shipment upload, and we will use that information at the destination to clear the shipment.

The customer doesn’t need to print and apply any paper at all in that process. This helps by saving them time, money, and paper.

Delaney: Let me jump in again. I just love the way that that sounds. For small businesses, I always like to cut to the chase about where can this be found. Where do they go right way so that they can instantaneously access this information? [See more on this solution at http://www.ups.com/simplify.]

Aubuchon: That’s a great question, Laurel. The answer is that in January our customers will be able to utilize UPS Paperless Invoice throughout our shipping system. If they happen to use our WorldShip shipping system, or do it over the Internet at our Internet Shipping site, they simply need to get set up as a paperless shipper.

This means they have to contact us and have one of our sales folks collect from them the initial information, which is an image of their signature and their invoice letterhead. From that point forward, they would simply apply that data to the shipment.

When they click "Ship," the data will go with that shipment information to UPS and be used for clearance at the destination port.

Gardner: I suppose another concern for businesses is not just getting it done at all, but being successful in global trade. What if they need to scale up their shipping rapidly? What if the volume increases rapidly? Are these services also something that can help them manage and automate batches or bulk deliveries? And how do you take this into a larger, automated volume play?

Aubuchon: That’s another great point. Certainly for SMBs, UPS Paperless Invoice will streamline their processes; reduce some of the complexity, and lend some consistency to the documentation required for international shipments. For those businesses that grow, or for larger enterprises, this is extremely valuable, in that it streamlines what today is really an exception process that needs to be done for each shipment -- printing and applying these paper invoices.

With Paperless Invoice, they can make their international shipment processing really seamless, and become the same as their domestic processing, which can eliminate the need for additional space and resources for that activity.

So, this is definitely something that will help someone to scale up or help someone already large to be much more efficient in their global shipment processing.

Delaney: So that means that we can move people off eBay.com in single shipments and get them over to this, right?

Aubuchon: Potentially, yes.

Gardner: Are there other software systems that you integrate or interface with? I suppose there are several invoicing and bookkeeping systems that are popular.

Aubuchon: Yes, and we do. In fact, our WorldShip shipping system allows customers to integrate through a number of different means to other databases or systems that they may use to produce this information. They can either enter it directly into the shipping system or they can link through technology and pull that information in. So, yes, it’s definitely an option for customers to use existing systems and data and to easily provide this information to UPS.

Gardner: You mentioned that this would come online in January 2008. You also mentioned being first to market. How does this compare to what's available through alternate shipping channels?

Aubuchon: If you look at the industry, whether it’s other small-package carriers that we compete with, freight forwarders, or freight companies, you’ll find that the process is really the same. They have to document the shipment by commodity and apply paper copies of that invoice to the shipment.

We’ll be the first ones in the market that will eliminate the need to take that step, and we'll use this information to seamlessly clear goods at any destination.

It’s only because UPS has a global reach and has the global technology infrastructure in place, that we can do this, starting from the touch point with the customer and their shipping system all the way through to our interaction with customs brokerages at the destination. So, we'll be the first to do this and we believe that will be a significant enhancement for our customers.

Gardner: Great. In addition to the customs clearance problem, there are also things like duties, taxes, and tariffs, which do vary from geography-to-geography and nation-to-nation. Is there anything that you’ll bring to the table to help expedite that, or is that still something that businesses need to address on their own?

Aubuchon: Those definitely are issues, as well. One of the keys to dealing with duties, taxes, and a proper treatment of shipments is, in fact, the documentation. So getting that commercial invoice data correct, and consistently applied to each shipment, will be a big help with that. UPS also does have other tools available at www.ups.com that can help customers with issues like determining compliance considerations for shipments as well as determining estimates of duties and taxes. That's called UPS TradeAbility.

Gardner: We’ve talked a little bit about the fact that the world is flat, that there is more opportunity for international trade, and that it’s probably never been easier to expand abroad both from a technological as well as a legal and regulatory standpoint. We’ve talked about the fact that there’s still complexity and that there are issues and problems with paperwork. Then we talked a little bit more about some solutions that you bring to the table.

Do we have any sense of what this is going to actually do for businesses? Obviously, they're going to be able to grow their top line of revenues if they can sell more goods in more places. But I'm interested in how this can impact businesses from the profit dollars-and-cents perspective. Stu or Scott, have you done any pilot projects or worked with some customers and gotten a sense of how impactful this is to profitability?

Aubuchon: Well, for a couple of our largest customers we've actually put in place a Custom Paperless Invoice solution. And for those two entities it’s been a significant help in terms of efficiency in their shipping process, of being able to apply resources more efficiently to other more meaningful paths.

Also, because the data is moving electronically at the speed of light to its destination, it's not susceptible to being marred or lost in transit, as a piece of paper might. It’s also helped them to get their shipments cleared more seamlessly. We've seen that for a couple of our customers -- and we expect that the same will be the case for our customers who start using UPS Paperless Invoice in January.

Delaney: I'm predicting that the more that you can save a small business time, money, and their sanity, the better off everyone is going to be, in terms of allowing them to really go global in the fashion they desire.

Gardner: Laurel, you’ve been in the business of helping small businesses better understand their global opportunities. Have you done any surveys or had discussions? How prominent are these customs and border issues when it comes to the SMBs considering whether to expand their business overseas?

Delaney: That's a great question. I have a funny story on what just took place a couple of weeks ago, when I was giving a presentation. No one in the audience knew me. They really didn’t know my background, and somehow they saw the title of the presentation which was, "The World is Your Market: Small Businesses Gear Up For Globalization."

After the presentation, a half a dozen people came up to me and said, “I was so relieved to hear your presentation and that you didn't stand up there and just talk about customs clearance, documentation, tariffs, and taxes.”

What that said to me is that this is a huge issue. A lot of small businesses stop dead in their tracks -- don’t do anything in terms of going global -- because of the hassle related to just beginning customs regulations and paperwork.

Gardner: They don’t know how or where to get started?

Delaney: Right. They do not know where to get started. So what's being offered through UPS is a godsend. It really is.

Dana, you asked about surveys that I’ve conducted. I actually haven't recently, but I am fully aware that UPS just released a study called the UPS Business Monitor United States. One thing that fascinated me about the study was one outcome that indicated that only one-third of U.S. mid-market firms conduct cross-border trade.

Think about that. Think about what a small number of businesses that is and how many more businesses are missing the opportunity to tap into more than six billion potential customers around the world. In the U.S., they're touching on maybe 300 million people, but when they go outside of their borders, they can tap into a larger percentage of the world’s population.

If you look at the latest world Internet statistics, you’ll see that more than one billion people are now online. So, just being online, having a Web site or a blog -- or this podcast -- gives you the capability to reach more than a billion people instantaneously. The potential is just enormous.

Gardner: Right, there are lots of upsides. Now, we have a great potential for growth in new business from the seller’s perspective. I would think that the customs folks would also be interested in this, because it's going to create more traffic across the borders, more opportunity for them to monetize and create services. Have you had much discussion with the customs people? How do they view this opportunity?

Aubuchon: We certainly interact with customs all over the globe every day, as we move shipments and serve as the customs broker. With the new UPS Paperless Invoice offering, we’ve definitely been in ongoing conversations to try to help customs officials understand what our goals are in helping our customers, and ultimately in helping them to get better information more quickly, and help them to more quickly clear goods.

In general, it has been very positively received. This is really the way, as we talked about earlier, that the world is going -- in that information is becoming digitized and moving much more quickly. So we feel like we’re really on the leading edge of using technology to help customs clearance processes become quicker and more accurate.

Gardner: The more commerce there is, the better it is for most of the parties involved, right?

Aubuchon: Absolutely. It's really a win-win situation both for the exporter and the importer when international trade occurs.

How to Return Goods Across Borders

Gardner: Let's move onto another problem set in this overall activity. It's great that I can move goods in one direction, but what if I need to move them back? What if there's a situation where a customer didn’t like the color, or perhaps the order wasn’t what they expected, or they would like to return and upgrade or get a replacement?

How do we deal with returns? We hear that for some 70 percent of international returns, there is no standard operating procedure. They’re just done on an ad hoc, exception-by-exception basis.

Let's go first to Laurel. How important is this return capability to the overall comfort level for these smaller businesses?

Delaney: Indicating to your customer that you’re ensuring some type of a guarantee is vital to the overall transaction. When small businesses sell to their customers, they want to ensure satisfaction – absolutely, positively. So, to answer your question, it’s very important to have this return process in place.

Gardner: Maybe Stu or Scott could explain what's involved. What has been the case up until now with returns when they need to happen across borders and come back through customs?

Marcus: I'll handle that. Laurel is absolutely right, and the research that we have done with our customers indicates that the most important reason customers want to have an efficient return process is for their own customer service. Exporting goods and shipping items globally is only one part of building your business. Offering customer service when things are wrong or customers need to replace items is really key to building customer loyalty and gaining additional business.

Customers know that, in the past, having items returned internationally was really a time-consuming and burdensome process. You have receivers who need to return items internationally, and they may not be familiar with shipping internationally. The shipper who sent it out really has a knowledge base in doing global commerce. Now, the receiver has these items and no way to efficiently get them back.

In the past, what shippers had to do was fill out a manual waybill and send it via mail or local post. It would take a couple of days or a week to get to the receivers. At times, they would just leave it up to the receiver to return these items on their own. That’s really not a very efficient process.

Customers have told us, especially small business owners, that because of this inconsistent process either they were afraid to do business internationally, or, when they did, there were times when they had to abandon their goods, because they just could not get the goods back to their own customers in a timely manner.

Gardner: The receiver wouldn’t even know where to get started if they wanted to return, right?

Marcus: That’s absolutely right. Receivers may not ship regularly or maybe had never shipped before. They're just receiving goods, and then they’re stuck with these items that need to be returned.

Delaney: What I love about this for small businesses is that it now gives them an extra little edge with their customers. It's a new promise that they can make to their customer, and that will set them apart and help them be even more competitive in the global marketplace.

Gardner: I know when I do returns, that it actually gives the seller another opportunity to engage me, perhaps on some up-sell or some additional value proposition.

Delaney: Absolutely.

Marcus: With UPS Returns, which we are expanding to 98 countries, UPS is going to be the first carrier to offer this type of solution to shippers. Now shippers can use the same UPS technology with which they export goods to prepare the return label and get it to their receiver to initiate the return process.

Gardner: This is going to begin in January 2008. What’s going to be different for the sender, and what’s going to be different or better for the receiver in terms of managing this international returns process?

Marcus: In January, UPS Returns will enable shippers to prepare a return label and also the commercial invoice, which can then be sent to the receiver in a couple of different ways.

First, they can produce it while they’re exporting a package, so they can just put a return label and an invoice in the package. Then the receiver, if they do need to return something, will have the label and the commercial invoice ready to go.

Another way is through e-mail. A shipper can now prepare a label and a commercial invoice and have it e-mailed directly to the receiver. Where in the past you would only be able to fill out a manual label and put in the mail, now the receiver can get it immediately, and then use the label and the invoice to initiate the return process.

In certain countries, we can have a UPS driver bring the label and commercial invoice directly to the doorstep of a receiver who needs to return something. All these options could be initiated through the normal UPS technology platform -- UPS WorldShip, CampusShip, or Internet Shipping.

Gardner: These are available through the Web, right?

Marcus: Yes, CampusShip and Internet Shipping are two Web-based platforms we have. UPS also has an XML tool, which is a shipping API, which can be integrated into a shipper’s internal process or their Web site in order to initiate this process.

Gardner: For those folks who are not software developers, this means they can use your Application Programming Interface (API) as a tool kit to integrate your software and processes with theirs?

Marcus: That’s right. To a receiver, it’s seamless. You just go right to the shipper’s Web site, and you can initiate the return.

Gardner: How does that strike you, Laurel, as a new opportunity to manage this returns process?

Delaney: It sounds fabulous. Some of this I already knew, and I’m being educated at the same time. What I’m always thinking is, where do I go and how do I take action? That’s the bottom line on this.

We've covered what the first step is for small businesses -- where they go online to start using this capability. Or, if they don’t want to access it online, whom they can call to get further information. [Learn more about the solutions described in this discussion at http://www.ups.com/simplify.]

Marcus: Laurel, this is one of the first times where SMBs will have access to this scope of global returns capability. In the past, the carriers were able to put together customized solutions, but that was mainly for larger customers. With UPS Returns this is the first time we will have a general service offering. There is no customer setup needed. The customer needs only to use our normal UPS Shipping Solutions or use Internet Shipping, and the capability will be right there.

Gardner: I believe there are a lot of direct and indirect cost savings involved with this aspect of the process. That is to say, the cost of a lost sale or a dissatisfied customer might be an indirect loss of future business.

If you can streamline the process, automate it, and scale it, I would think that the savings are pretty significant. Have you received any feedback from some of your early customers?

Marcus: One thing customers tell us is that they notice an improvement in customer service. The cost of setting up the returns process is negligible, and the transportation cost is in line with our normal transportation cost for exports. But none of that was a factor in our research. Building relationships and setting up a business to bring customers back for return purchases was really the most important factor of UPS Returns.

Gardner: So the logistical costs are low, if those long-term benefits include a recurring, happy customer. That really is the story here.

Marcus: That’s absolutely right.

Gardner: Does that ring true with your experiences, Laurel?

Delaney: The obvious benefits are greater efficiency and time and cost savings. I see additional growth now for SMB enterprises due to the ease of use on the paperwork side of transactions.

But two other things will occur as a result of this UPS Customs Clearance and International Returns benefits. This is an unusual way to look at it, but SMBs will be able to devote more time to innovation.

In other words, just by thinking creatively about going global, they can go global. That’s critical to remaining competitive, and it will allow them to spend more time on the strategic versus the tactical side of globalization.

Gardner: And then, therefore, focus on the marketing and not worry about the paperwork and all of the processes and the transaction.

I know you can’t tell us about products and services that haven’t been announced, but this strikes me as really not the end game. Perhaps it's just the first few steps into some more additional global trade value-added services and shipping expediency benefits.

Can you paint a picture for us about what might be happening in the next several years in terms of international trade in multiple directions?

Aubuchon: At UPS, we’re constantly talking to our customers and trying to identify the issues they face with shipping, and specifically international shipping. We’re continually in a conversation, trying to identify those pain points and to design solutions. UPS Paperless Invoice and UPS International Returns are two examples that will be coming out in January.

But as we move forward, rest assured that we will continue to evaluate other opportunities and deliver solutions for our customers to address other issues.

Gardner: For the small business that might have some ideas about what they need to achieve efficiency, can they send those ideas to you, COD?

Aubuchon: Oh, absolutely. The voice of our customers is very important to us, and anything they want to share with us, we’re more than happy to listen to and take into consideration and see what we can do to help them.

Gardner: Very good. I want to thank our group. We’ve had an interesting discussion, understanding some of the hurdles -- and now some of the new efficiencies -- that are being brought to cross-border commerce for SMBs.

Helping us to understand this opportunity and newfound efficiency, we have been joined by Laurel Delaney, the founder and president of GlobeTrade.com. Thanks, Laurel.

Delaney: Thank you.

Gardner: Also joining us has been Stu Marcus, director of new product development at UPS, as well as Scott Aubuchon, also a director of new product development at UPS. Thank you, gentlemen.

Marcus: Thanks, Dana.

Aubuchon: Thank you, Dana.

Gardner: This is Dana Gardner, principal analyst at Interarbor Solutions, and you have been listening to a sponsored BriefingsDirect podcast. Thanks for joining.

Listen to the podcast here. Sponsor: UPS. Learn more about the solutions described in this discussion at http://www.ups.com/simplify.

Transcript of BriefingsDirect podcast on international shipping efficiencies and UPS solutions. Copyright Interarbor Solutions, LLC, 2005-2007. All rights reserved.