In today’s increasingly unified world economy, it’s increasingly difficult for countries to remain immune to problems happening on the other side of the planet. This particular downside of globalisation has been the platform for the current financial crisis that was precipitated by the sub-prime mortgage crisis and resulting credit crunch in the US.
“We are now discovering that when America’s economy sneezes, the rest of the world gets sick very soon,” said Ross O. Storey, managing editor, Fairfax Business Media, at an October executive briefing, organised by CIO Asia, which examined the topic ‘IT Globalisation De-Mystified’. At the event, senior IT executives, from Progress Software and Deloitte Consulting, shared their thoughts on Service Oriented Architecture, Business Process Management, the Real-time Enterprise and Business Visibility.
Storey said that, while the traditional response to today’s global financial woes would be to cut spending, delay projects and reduce jobs, these moves could be long term mistakes for organisations. IT departments have faced tightening budgets for several years and any further cuts could “exacerbate rather than enhance an enterprise’s ability to ride out the current financial storm”, he said.
“If enterprises take a more strategic view, then one argument CIOs could mount is that now is precisely the time when IT budgets should be increased, to maximise efficiency, productivity and profits for the business,” Storey said.
In these difficult times, Lee Dai, professional services director, Asia, Progress Software, said that CIOs have to provide answers to questions like: “What are we getting out of the systems that we have purchased, what are we getting out of the databases and ERPs?”
All these systems had to work together efficiently and this was where integration could enable the CIO to get a better view his existing IT environment, added Lee.
Lightning fast business
The accelerating speed of business processes is also driving the IT integration case forward. “Basically the speed of business is increasing even in this downturn,” remarked Lee. In the consumer PC space, a built-to-order desktop now only took one day to be delivered to the customer, compared to four weeks in the past.
“The fast changing pace of the business is another reason that is driving everyone towards a better integration of technologies.” In such a challenging environment for IT, Service Oriented Architecture (SOA) came into its own, he explained.
SOA = Real Life
For senior IT executives to better present the case for investing in SOA, Lee recommended drawing the picture of SOA mirroring daily and business services found in real-life.
Lee drew the parallel of SOA with the JAVA programming language. “Everybody still talks about using JAVA, even though it has been around for a long time.” He maintained that JAVA’s kept its popularity because, being object-based, it closely resembled day-to-day activities in people’s lives.
One often quoted example of the benefits of SOA was service reusability. “People talk about cost reduction and increased IT efficiency, but is this really true?” said Lee. “I remember back in the days when I was selling EAI, the same reasons were given as well, so service reusability is not a good enough reason alone for me to do SOA.”
Another common reason given for SOA adoption is that it offers a distributed environment to match businesses that are spread out geographically. “This is good too, but there is nothing special about SOA either. I can probably do the same with EAI.”
Also, SOA is modular and agile. “But it does not answer the question for me,” said Lee. “For example, if a C-level executive like the CEO is asking you, ‘why do you spend half a million dollars on an SOA solution?’ I hope your answers are broader than these, or you could be in trouble.”
BPM? Not quite there
When IT executives engage vendors, SOA is often paired with Business Process Management. But Lee felt that BPM technology has its limitations and might not be the panacea that IT executives are seeking.
BPM is used to model business processes but Lee said that, in many organisations, “you have a lot of unspoken and unwritten business processes. People just know that when something happens they need to do something else, they don’t know all the processes that are working,” said Lee.
“So many big business organisations have a lot of business processes that are probably not very well defined. This is the first challenge for BPM.”
Another test for BPM is that there could be vast numbers of business process working within the organisation. “How many do you think you can model with a BPM tool? The answer is not as many as you think.”
Instead of attempting to define business processes, Lee recommended IT executives let their own infrastructure reveal the actual nature of their companies’ business processes. To do that, employ business process visibility or discovery tools to complement your BPM system, said Lee.
Look forward, not backward
During tough times, Lee recommended that IT executives kept abreast of technology and tools that were being developed.
“In such difficult market conditions, the general tendency is to cut back and be more conservative. In fact these are the times that you actually want to look at new technologies, because when things recover, you can leverage on the lessons learned during the tough times and be a step ahead of the competition.”
According to Lee, businesses today are driven by events. “According to research from Gartner, some of the large companies have millions of business events per second. If you are a telco and one of your users makes a phone call, then that is an event.”
And organisations are using business intelligence to track events and make business decisions. However, he said that most of these solutions in the market were backward looking. But, with businesses needing real-time information, making decisions based on historic data, was like driving by looking in the rear view mirror.
“If you look at the financial companies in the world, all these businesses were selling the Collateral Debt Obligations (CDOs) and the subprime mortgages, just as business was deteriorating,” said Lee. “What then happened was that buyers continued to make their purchases not knowing that housing prices were dropping.”
And it was not an event that happened over two weeks or two months but something that had been going on over two to three years, according to Lee. “The housing prices had peaked back in 2005 and have consistently been dropping. While the prices were sliding, people were still buying without knowing the actual trend.”
“In a way, buyers were living in the past,” observed Lee. “Looking at historic data to make major business decisions may be fine in certain times. But when times are changing, or when you are at an infraction point for the business, it could be catastrophic.”
There has even been an argument that, with a higher level of analytics, financial services regulators would have had a better sense of what global financial institutions had been doing, said Storey. “They might have discovered the cash liquidity risks and prevented what has happened,” he said.
Real real-time business
“We’re not saying that business intelligence is not a good way to go, but you need real time business intelligence,” said Lee. And one way to achieve that was through Event Driven Architecture (EDA), he suggested.
“In financial services, if the broker is telling you trading activity from an hour ago, I am going to ask him why is he giving information that is an hour-old. I want the real-time data, not something that is an hour-old or even five minutes-old.”
With SOA in place, it fits very well for the real-time business, said Lee. The next step would be the use of an integration backbone, like the Enterprise Service Bus (ESB).
There is a convergence of services and events vis-à-vis SOA and EDA, said Lee. “The adoption of ESB is going to help in the implementation of large scale SOA/EDA infrastructure.”
The next valuable tool was customisable dashboards. These serve to visualise the ‘need to know’ data because “if you cannot visualise the data, you cannot really know what is really happening.”
According to Lee, tools enabling real-time business capabilities are already in use in the market today. In the case of Progress Software’s customers, from the algorithmic trading sector in the finance industry, the CEP platform was used for real time trading.
“They are basically looking at multiple data streams including NASDAQ and news wires. Based on these data, they make real time decisions. They also have a customised dashboard to show how much money you are making and the current position within the portfolio.”
Aligning business with IT
In CIO Asia’s State of the Asian CIO 2007 study, the issue of aligning IT and business goals was the stand-out management priority for 2008. “This consistently rates as the highest priority for senior IT executives in Asia,” said Storey.
In the current increased pressure to cut costs and run the business more efficiently, IT departments should start looking themselves as an internal service provider with the various business groups as clients.
The IT division cannot be servicing all IT initiatives on a non-chargeback basis. “In short, the IT department can no longer just be a cost centre where you always have to beg for investment from the CEO,” said Atsushi Moriya, director, Japanese practice, Deloitte Consulting.
With such a model, the IT department can operate as a business with appropriate financial transparency and commercial discipline, while also focusing on delivering cost efficient and competitive services. “You are selling your services and products internally, as if you are the external vendor,” said Moriya. However, he said, such a trend has only been prevalent so far, among the American or European-based firms, he observed.
Evolving to a chargeback model, IT departments should look at attaining at least the level that is resource-based, suggested Moriya. In such a framework, IT services consumption is traced by account codes assigned to each user. Costs are traced to hardware rather than by activities.
Goals, goals, goals
In terms of setting out targets, Moriya recommended a concept where the CIO would be working in alignment with the CFO. IT departments would have to stock-take the valuable initiatives and projects, align them to the portfolios, and then always map them to the enterprise business functions, to get a clear picture of the contribution that IT was making. For instance, cost reduction opportunities could be found in the area of maintenance contracts. By validating inventory against billings, up to 30 per cent costs could be shaved, said Moriya.
“Then set financial targets, value insights, then bring those back to quantify the cost and the benefits, and summarise financial implications,” he said.
Moriya also recommended benchmarking IT initiatives. “There are always such measurements in logistics, finance and sales,” he explained. “We should set KPI for IT initiatives and quantify IT services, so that you can claim some extra performance, and inform the CEO or CFO about the performance.”
Playing the long game
In today’s difficult economic climate, Lee recommended IT executives to get tough in the face of pressure. “Now is the time to start looking at investing and paying attention to the new technologies that are coming, because otherwise, when the economy recovers, one will already be behind,” he explained.
IT can become a valuable weapon against economic downturn, Storey suggested. In CIO Asia’s State of the Asian CIO 2007 study, respondents listed “creating competitive advantage” as one of the main impacts of IT on their enterprises, he said. “So now is the time to make strategic investments so that one can position the organisation better than the rest of the competition when the crisis recovers,” said Progress Software’s Lee.
