The road to SOA and business flexibility

The business terrain for today's banks, insurers and financial markets organisations is fraught with competitors, complexity, regulations, consolidation, demanding customers and business models that must change quickly and precisely. To navigate successfully, firms must be flexible and thus require flexible IT infrastructures. Many firms are pursuing aligned IT and business flexibility by integrating systems based on a service-oriented architecture (SOA).

In this feature, Sandy Carter, IBM Vice President in charge of IBM WebSphere strategy, channels and marketing, shares her views on how integration and SOA are changing how IT operates in today's financial services industries. She also discusses how the newly announced IBM Business Integration Adoption Model is helping these organisations reach their SOA and integration destinations to create unprecedented business and IT flexibility.

	How do you define SOA?
	Just the latest buzzword?
	Why financial services?
	How does the adoption model help?
	How is SOA and integration helping today?
	What specific applications do you see?
	So IT flexibility is the key to business flexibility.
	What does IBM bring to the table?
	Medium-sized companies too?
	What's down the road?
	How do you get started?

How do you define SOA?

Well, there is the industry view of SOA, and essentially it's a methodology that helps you transform applications into component business processes called services. You can quickly manipulate these services. Combine them. Add new ones. You can change the processes to address changing business needs and leverage the services across horizontal boundaries. The business process is no longer bound to a specific platform or application. It can be treated as a component and be reused or changed.

The key, I think, is that by creating these services you are able to define in business terms, not IT terms, the underlying architecture that allows business flexibility. In this way, SOA is the blueprint or DNA that drives business integration. It provides a framework for systems and enterprise integration that allows information systems to be more flexible in adapting to dynamic business requirements.

Is SOA just the latest technology buzzword or do you see it having lasting impact?

According to some analysts and what I've read, Yankee Group surveyed 473 enterprise decision-makers and 75 percent of them plan to invest in SOA technology in 2005. There are reports that Gartner believes that by 2009, SOA will play a dominant role in new application projects. But I think the interesting part is that the adoption is not being driven by IT. It's being driven by the business. Another study, the Cutter Benchmark Survey, found that 60 percent of the people they surveyed believe that SOA is being driven by business requirements in their companies, and that they thought it must be based on a comprehensive business model to be successful. I believe this concept of linking business and IT, the business processes and underlying architecture is the way to competitive advantage.

One of the goals of SOA is IT flexibility and responsiveness. Is this particularly important in financial services?

Yes it is, and for a number of reasons. Financial services organisations must be flexible and move quickly to respond to the conditions in their industries. In banking for example, since 1985, 47 of the major banks have consolidated to five. These acquisitions don't share the same business processes across the bank, which makes it difficult to adapt processes and be responsive. They face other challenges, too, such as new and stringent regulations. They are driven to integrate their channels so that customers have a seamless and positive experience across all of their interactions. Many firms are also outsourcing services to focus on their core business and be more competitive. Plus, they have to quickly introduce new services to attract customers and still contain costs. All of these challenges make flexibility and responsiveness imperative.

If you think about the drivers of SOA, it is especially helpful to businesses with a complex portfolio of applications, which all of these organisations have. Banks have multiple channels—branches, ATMs, online—and therefore have a complex set of processes and applications to support these channels. And these get multiplied when mergers and acquisitions occur. We also know that these businesses are being driven to create efficiencies across their processes, both internally and externally, and this is also a key driver for SOA and business flexibility.

How does the Business Integration Adoption Model help financial services organisations achieve greater flexibility through SOA?

It does several things. First, it helps you start with the business requirements, and the model is based on several industries–banking, financial markets, insurance and others. It includes the best practices and the knowledge of both IT and business specialists in these fields. So it is based on the IT and business team working together and being driven by business needs.

It also helps you avoid what I call the Big Bang–the sudden realisation of how massive the integration and SOA initiative can be. The model helps you focus on specific goals and the steps to reach them. It's like Mapquest for business integration. You're at point A and driving to point B. There are points that you need to reach along the way. The model helps you reach those points in a managed and logical way. It also provides you with the governance for the architecture, the standards you need to follow, the stop signs and speed limits. The first step for SOA is always the most important. The model helps you to plan through that first step while ensuring that you're doing your business modeling correctly and utilizing best practices and standards.

How is SOA and business integration helping financial services today?

In financial services, The CIO has two basic goals: Make the business more efficient and reduce costs, and at the same time increase growth opportunities through business agility and responsiveness. It's interesting because according to Gartner most chief executives see IT as a barrier not an enabler to meeting their goals. So these companies don't have the integration and flexibility on the IT side to support what the business needs and I think that SOA and integration capabilities can help remove that barrier.

Charles Schwab, for example, has been a leader in adopting a standards-based, service-oriented architecture. They are removing the IT barrier because they use SOA and integration so that their processes are no longer tied to specific elements of their underlying technology. They can change customer-facing processes without having to change the underlying technology. At the same time, they can make back-end technology improvements without disturbing the front end. This provides tremendous business agility. They can get new products and services to market faster and drive greater revenue growth.

Another way to look at it is using integration capabilities to focus on best practices to achieve growth. With the consolidation in financial services, these companies are shaped by multiple acquisitions. Companies can take advantage of this by looking at the best practices of the companies they have acquired. Who does customer loyalty best? Who is the best at motivating customers to use credit cards? They are looking across their enterprise and identifying the best practices and then using SOA and the integration underlying these processes to leverage best practices across the business.

On the cost-reduction side, and when we think about how SOA helps create component business processes, IBM helped Bank of America's card services division identify 40 million dollars of simplification and cost-savings projects over two years. The key was developing a component-based business model to identify opportunities and eliminate redundancies.

SOA and business integration deliver enormous cost-savings to IT departments. The ability to create, adapt and re-use services creates strong efficiencies for them. One of the insurance companies that we are working with, Standard Life, is looking at saving two million English pounds in three years in development efforts thanks to business service reuse. This is according to Computer Business Review Online.

What types of specific applications do you see?

If we stick with banking for a moment, not so long ago banks were relatively small and did everything themselves, but with consolidation, we now have a lot of shared services both inside and outside the bank. Banks can now farm out processes such as credit analysis, credit card authorization or check archiving. This enables them to focus on the things they do best, but it represents challenges for IT. Because SOA provides a methodology for processes to be transformed into components or services that can be shared inside and outside of an organization, banks now have the IT flexibility to share services with partners and suppliers so that they can concentrate on the core business that really drives their growth.

Another application is integrating processes across channels. Banks, insurers and financial markets companies all face managing multiple customer interfaces into their businesses. Integration of these channels is critical because it touches everything from customer service to distributing new products to productivity and more. Typically in today's financial services companies, each channel acts as an individual business with its own processes. The contact center has its processes. The online people have their processes. The challenge is integrating and sharing processes so you can quickly change one process across the channels rather than changing multiple, individual processes. This capability gives you business flexibility and a powerful competitive advantage.

BMO Financial Group in Canada uses WebSphere integration so that it's Internet, call centers and branches use the same processes and information. They can quickly deliver new information to customer service representatives or their branches or the Web and this greatly improves their productivity. It also integrates service channels into the sales process to help boost revenue and profits, and it lowers costs because the systems are simpler and easier to change and maintain.

I see the same results happening with another customer, Banca Popolare di Milano in Italy. We teamed with them to develop Europe's first integrated multi-channel banking solution. It gives them a complete picture of their customer because they can view customer activity across all of their channels. With this complete customer picture, they can increase revenue through cross-selling. And customers get a consistent, positive experience no matter how they interact with the bank.

You can also achieve tremendous results by improving the integration through the supply chain and I think insurance makes a good example here. A lot of insurance companies sell directly over the Internet, but some types of insurance like commercial property-casualty are still better handled through an agent network. But the agents are not usually well integrated with carriers. ACUITY used our software to connect agents' management systems to its core insurance transactions. This integration delivered efficiencies that gave ACUITY vastly improved speed and business flexibility and they were able to leap ahead of the competition. They achieved a 200 million dollar increase in premiums over two years. Their profitability was 15 percent higher than the national average for property-casualty insurance companies and there was a 40 percent increase in average premium per agency.

So IT flexibility is the key to business flexibility.

IT flexibility is critical. I spoke with the former CIO of Compaq and he told me that they knew what business model they needed. They knew the changes they had to make to their distribution processes, but they couldn't change the underlying IT infrastructure for two years, so they missed the market.

I watched a television special recently about Wal-Mart, and they looked at how their supply chain has achieved a level of integration so that they can tailor each store to the buying habits they see in that store and change it as those patterns change. They always have the right product in the right store at the right time. They can even change it based on the current weather conditions if they need to. Everybody focuses on their logistics, but it's the underlying integration of their suppliers and their stores that makes the logistics work and gives them this incredible flexibility.

How is IBM helping companies achieve IT and business flexibility?

I think IBM brings some unique things to the table from both an industry and technology perspective. We can deliver a great deal of industry and process expertise from our consulting practice. In fact, in creating the maps in our adoption model, we leveraged a lot of the best practices and know-how from that practice. But in addition to the process piece or business piece, you also need the technology piece. Only IBM can combine that industry know-how with the technology, which is WebSphere. WebSphere is the integration platform that enables our customers to move to this new on demand era of SOA, the era of business flexibility and responsiveness.

A great example of this is our IBM Core Banking Transformation solution. It's based on SOA and WebSphere and it allows clients to transform their core existing systems into a modern, next-generation system in a progressive, accelerated and risk-contained way. The industry expertise and technology expertise come together to help achieve the flexibility of an On Demand Business.

Companies that are leveraging integration and these types of solutions are seeing impressive results, and not just in financial services. A study by IBM shows that when compared to others in their industries, companies that have gone the farthest in developing their on demand capabilities have on average experienced superior three-year growth in key areas of business performance. Companies that have displayed the attributes of On Demand Business grew earnings 15 points faster than their peers and enjoyed 1.3 points better gross profit margin improvement. Each point can make a big difference in terms of market leadership. For example, for a company with five billion dollars in revenues, a single point gain in gross profit margin can yield 50 million dollars.

Typically, financial services organisations are perceived as large enterprises. Do you feel the model and integration capabilities can help mid-sized and growing organisations, too?

Absolutely. In fact, SOA and integration capabilities may be even more beneficial to medium-sized businesses. As we've seen, the value of SOA is that it allows you to create services and you don't have to deal too much with the underlying technology; you can simply use the service. Most growing companies are not exceptionally deep with technical skills. So by leveraging these services it makes it easier and faster for them to make progress with their IT and their business.

For instance: There is a company that specializes in sales tax calculation and they've created a service based on Web services. Any application can call that service and calculate sales tax. Now if I'm a mid-sized business, this might not be central to my business, but it is absolutely necessary for my business. So I don't want to use my limited IT resources to create a sales tax application. I can purchase or access that service and use it across my business and not have to create it myself. So that's a huge advantage for mid-sized companies.

How do you see SOA and integration impacting business down the road?

I think at least part of the impact is IT and business really coming together. For some time I think we've had the perception of a division between business and IT. But now I'm seeing IT asking business people to help them understand business concepts so that they can communicate better. At the same time, today's business people grew up in the digital age so they know about IT and technology and are looking to the IT guys to help them understand it more. I believe the movement towards SOA can contribute to erasing the division. Ultimately, you could see an environment where business and IT are so well aligned and services are at such a high component level that business and IT can assemble processes and applications together. You may no longer need an interpreter between business and IT.

What's the best way for customers to get started?

Well, that's how the adoption models fit in. It helps customers to start with their business needs and it helps them reach their goals. If we return to the Mapquest analogy, it doesn't just give you directions from New York to Atlanta, instead it allows you to choose the direction that's right for your business and reach your destination through logical, manageable projects that help you achieve the flexibility that's right for your business and your needs.

We're offering a self-assessment tool that helps customers gauge where they are in SOA adoption. Those newer to SOA may get feedback from the tool that focuses on education, skill development and learning which projects are the best for a SOA approach. For firms with SOA experience, the emphasis may be on governance, management and other factors that help them get to the next level.

The first step is to take the assessment. You'll get instant feedback with customised, actionable suggestions to consider and share with your teams. Some things you can start right away, like online education customised to your job role and SOA skill level. Next, you'll want to engage your IBM sales rep to learn more about the products, workshops and services appropriate to your situation. Whether you're a beginner or an expert or if you like to do-things-yourself or prefer more guidance, we're offering the SOA tools, workshops and services to help you accelerate your adoption and improve your flexibility.

Learn more about SOA

Access the IBM SOA Self-Assessment tool and learn more about the Business Integration Adoption Model InfoWorld: IBM rolls out SOA initiative IBM Building an Edge: Today's insights for tomorrow's financial institutions IBM Core Banking Transformation solution

Sources

The Industry Standard, "Gartner's Top Ten Resolutions for CIOs in 2005," Scarlet Pruitt, December, 2004 Computer Business Review Online, "IBM claims real world SOA success," February, 2005 IBM Case Study, "ACUITY Leads Insurance Industry in Helping Agents Work Efficiently" IBM White Paper, "Becoming an On Demand Business: Innovation Breaks New Ground," John Hagel, III, February, 2005 (135 KB) Get AdobeReader

	Cutter Benchmark Survey, "Service-Oriented Architecture: Excitement, Value and Confusion," August, 2004.
	Complexity + Integration in Financial Services: Can Software Meet the Challenge? Bill Bradley, Financial Insights, 2004.
	CNBC Special, "The Age of Wal-Mart," November 2004.