13. Service Oriented Architecture and Global Service Delivery Models

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1 1 of 32 10/10/2006 8:02 PM 13. Service Oriented Architecture and Global Service Delivery Models IS October 2006 Bob Glushko

2 2 of 32 10/10/2006 8:02 PM Plan for Info & Services Economy Lecture #13 Historical evolution from "national" to "multinational" to "global" Co-evolution of technology and business architecture "Business Component Modeling" and "Service Orientation"

3 3 of 32 10/10/2006 8:02 PM Today's Readings "The Globally Integrated Enterprise" -- Palmisano Globalization in a historical perspective; business architecture has evolved throughout history and will continue to do so Don't project the mid-to-late 20th century IBM into the 21st century; we're different / nicer / more successful "Impact of Service Orientation at the Business Level" -- IBM Research

4 4 of 32 10/10/2006 8:02 PM Business Architecture -- Organizational Perspective multinational firm global firm componentization value net business ecosystem virtual enterprise

5 5 of 32 10/10/2006 8:02 PM Business Architecture -- Strategy Perspective economic nationalism globalization arbitrage global sourcing outsourcing "on demand" "best of breed" "bridging the gap" key performance indicators intergovernmental networks

6 6 of 32 10/10/2006 8:02 PM Business Architecture -- Technology Perspective interfaces "plugging in" composite application platform

7 7 of 32 10/10/2006 8:02 PM "International Economic Enterprise" [1] International trade dates back well over two thousand years when Phoenicians and others sailed around the Mediterranean, and the Romans unified their empire economically with an extensive transportation network Before nations were well-established, the Hanseatic League established and maintained a trade monopoly over the Baltic Sea and most of Northern Europe between the 13th and 17th centuries Palmisano starts his history in the 16th century with national chartered monopoly trading firms established by the British and Dutch governments

8 8 of 32 10/10/2006 8:02 PM "International Economic Enterprise" [2] The international corporation emerges in the 19th century "An entrepreneurial joint-stock company, organized in simple hub-and-spoke networks, it established and controlled international trade routes, often relying on its home state s armed forces for protection." Enabled by vastly reduced transportation costs using steamships and railroads Exploit the natural resources of the colonies, manufacture at home, sell finished goods back to the colonies By the end of the 19th century, international trade had resulted in significant global economic integration

9 9 of 32 10/10/2006 8:02 PM Multinational Firms Multinational firms have a global presence, but are essentially a collection of national firms controlled to a great extent by the "home office" Multinationals locate factories to minimize supply and distribution costs and to get around trade barriers, exchange controls, and other "economic nationalism" Most of the "core" business processes of the firm (sourcing, production, distribution, hr, etc) are duplicated across geographical regions IBM is the "emblematic multinational" (it has been "International Business Machines" since 1924 But two world wars and the Great Depression unraveled much of the global economic integration, and it took 50 years for it to be restored

10 10 of 32 10/10/2006 8:02 PM The Supply Chain The business model and business strategy of a multinational corporation is usually embodied in its supply chain The supply chain is the network of facilities and distribution capabilities the business uses to: "Source" (or "procure") raw materials (chemicals, ores, grains,...) or components Transform the materials or assemble the components into products Deliver the products to customers (indirectly through distributors or stores or directly to the purchaser)

11 11 of 32 10/10/2006 8:02 PM Supply Chain - Physical Model

12 12 of 32 10/10/2006 8:02 PM Supply Chain - Logical Model

13 13 of 32 10/10/2006 8:02 PM Globalization So even though "globalization" is a recent economic concept, the process has been going on for thousands of years But the patterns and processes have changed; globalization is no longer just an extrapolation of past experience in textiles, apparel, steel, electronics, and so on It is better to view globalization as the flow of value from old, obsolete business designs to new, more economically effective ones by taking advantage of global sources and markets These changes are taking place in both developed and developing countries, with similar resurgence of economic nationalism

14 14 of 32 10/10/2006 8:02 PM The Global Firm Firms need to become "global" rather than "multinational" in response to increasingly transparent markets and more demanding customers The core business strategies and business processes are increasingly global and involve widely dispersed parts of the firm So firms have choices about where to perform processes (and whether they want to themselves or have an outside partner do them) Palmisano -- the "shift from Products to Production" "where should we put a factory to best serve this market" (thinking locally) ==> "where can we source the materials and other inputs for our global operations" (thinking global supply chains)

15 15 of 32 10/10/2006 8:02 PM Enabling the Global Firm Communication, coordination and integration costs decline because of new technologies and technology standards Standard business practices (procurement, accounting, legal, finance, etc.) throughout the firm make internal and external transactions more efficient It becomes easier to "do business" with the firm -- to "plug into" it in both technical and business ways

16 16 of 32 10/10/2006 8:02 PM The "On Demand" Business A global business needs to be able to quickly and cost-effectively change how it does business and who it does business with (suppliers, business partners, customers) Facilities, equipment, and inventory -- traditionally viewed as the core assets of a business -- can limit the flexibility to try new business models to become more responsive Imperative to shift from forecast to demand-driven business models

17 17 of 32 10/10/2006 8:02 PM Becoming an "On Demand" Business Create more flexible relationships with "assets" to handle variable demand; lease rather than buy, use "software as a service," etc. Evolve from from "vertical" to "virtual" integration, relying on "value nets" -- networks of suppliers that collectively can respond more flexibly to variations in demand than a "captive" supplier can Competition is more appropriately viewed as between entire supply chains rather than between firms

18 18 of 32 10/10/2006 8:02 PM The Information Exchange Imperative Use new technologies that enable demand information to be captured more quickly Eliminate the information flow and management bottlenecks inherent in "point-to-point" bilateral supply chain connections This puts a premium on the ability to communicate and coordinate rapidly with suppliers, distributors, or service providers to respond to changes in demand, competitive threats, natural or man-made disasters, or other important business events. Many enterprises have adopted marketplace platforms or hubs that businesses or service providers can connect to instead of having to make numerous separate point-to-point connections with each other.

19 19 of 32 10/10/2006 8:02 PM The Firm as "Information Hub"

20 20 of 32 10/10/2006 8:02 PM Motivation for the "Componentized" or "Service-Oriented" Business "Components" are not a new idea -- in manufacturing, we've been assembling things from standard parts since the early 19th century, with Eli Whitney being credited as first to put the idea into practice But it is only in the last few years that "business architecture" adopted this idea Thus we need to think of "what a business does" in more granular terms so that the right set of business services can be assembled as needed to carry out a business model

21 21 of 32 10/10/2006 8:02 PM Definition of Component A component offers a business service to other components A component has: A business purpose One of more activities Resources Governance Services

22 22 of 32 10/10/2006 8:02 PM Modeling a Business as a Set of Components Business processes are typically "factored" into components according to the "best practice" patterns in each industry An emphasis on business model / business process / information exchange patterns facilities component reuse / reassembly into new combinations - virtual enterprise, composite services "What components do" is defined in abstract, technology-independent terms so we don't have to care about the computer, operating system, or software application that performs each business process This level of abstraction reduces integration and communication costs between components and is the essence of service orientation

23 23 of 32 10/10/2006 8:02 PM Component Business Map

24 24 of 32 10/10/2006 8:02 PM Whose Components? The abstraction in a component or service view makes it easier and cheaper to take on new business partners with shorter term, more ad hoc relationships So once a business is able to treat its business services as components, it should aim to have all of them be "best of breed" and not care whether it does them itself or whether it uses business services provided by another firm Outsourcing business processes that aren't core competencies (as determined by "key performance indicators") increases focus and facilitates investment and innovation in those that are While there is no denying that cost considerations alone play a major role in a company s decisions to divest facilities or outsource services, the increased flexibility enabled by these changes is important too

25 25 of 32 10/10/2006 8:02 PM The "Virtual Enterprise" -- Internet Bookstore

26 26 of 32 10/10/2006 8:02 PM Component Based Substitution

27 27 of 32 10/10/2006 8:02 PM Arbitrage Palmisano: "these decisions are not simply a matter of offloading noncore activities, nor are they mere labor arbitrage" Arbitrage is the strategy to take advantage of price differences of the same security, currency or commodity trading in different markets Economists use the term "global labor arbitrage" to refer to the tendency of manufacturing jobs to flow towards whichever country has the lowest wages per unit output at present and has reached the minimum requisite level of political and economic development to support industrialization Arbitrage strategies can be applied on other dimensions other than price

28 28 of 32 10/10/2006 8:02 PM "Global Collaboration" There are obviously many issues that can't be dealt with on a national or single enterprise basis Palmisano endorses "intergovernmental networks among the world's regulators and legislators" But is collaboration another word for "business getting government to create the playing field it wants?"

29 29 of 32 10/10/2006 8:02 PM Traditional vs Service-Oriented Enterprise -- Business Ecosystem

30 30 of 32 10/10/2006 8:02 PM Traditional vs Service-Oriented Enterprise -- Business Process

31 31 of 32 10/10/2006 8:02 PM Traditional vs Service-Oriented Enterprise -- Business Architecture

32 32 of 32 10/10/2006 8:02 PM Wrap Up: Palmisano's Challenges Securing a supply of skilled people Sensible IP regulation Maintaining trust in distributed business models Maintaining a long-term focus (his problem)

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