Companies must become more agile and work together to remove costs from the value chain to reduce friction. This will improve the overall efficiency the overall value chain that can either increase margins or reduce prices to the consumer. This is a growth strategy rather than a cost reduction strategy. Industry leaders such as FedEx, Wal-Mart, Dell and Cisco have demonstrated the effectiveness of an integrating their value chain to expand their businesses. Integration is a strategic need in the industry and it is going to happen, the question is what is the fastest and most cost effective approach to cross-organizational integration.
The value chain is composed of heterogeneous systems that need to be integrated. The value chain is and will remain heterogeneous. This is due to three powerful forces at work. One of the key arguments for the value chain becoming homogeneous is that standards will, at some point in time, deliver a homogenous world. This will only happen if you believe that the objective of standards is to create a single standard. Rather the goal of standards is to create a number of interoperable standards those information workers can use as their toolbox to solve problems. The goal is to create a well-defined set of tools not a single tool to solve every problem. As a simple example take file transfer, today I can use SMTP, HTTP and FTP to transfer files between two systems. These protocols are all standards and are useful for solving different problems. Standards will not cause two of the three to disappear or any of the other host of means of transferring files.
The number of platforms used to serve enterprise applications is continually changing as new platforms arise, e.g. Amazon, eBay and SalesForce are becoming increasingly important platforms for enterprises while PeopleSoft and JDEdwards have merged. This evolution will continue to happen and as such the range of connections required will continue to change and evolve.
The final argument for a heterogeneous world is the evolution of companies from small companies with limited IT resources and sophistication to large companies with sophisticated systems. In the real world they are all part of the value chain and companies do not select customers and partners solely by evaluating the sophistication of their IT infrastructure. While company size may be a factor in deciding marketing strategy it does not in the final days of a quarter determine sales.
These arguments clearly demonstrate that the value chain is and will remain heterogeneous. It may become a little more homogeneous as we improve standards and reduce the technology gap between the spectrum of large and small organizations but it will remain heterogeneous. Therefore to deliver on the vision of an agile value chain that reduces costs for everyone we need to consider how to bridge the technology gap between heterogeneous systems.
There are three possible approaches to bridging the gap:
- Enforce homogeneity by dictating that all parties in the value chain must use the same software, messaging protocols, security standards and levels of service.
- Support heterogeneity at the edge by having each party connect point to point and implement a broad set of technologies that are required by all their partners.
- Utilize shared infrastructure to broker the conversations and allow everyone to leverage costs that the shared infrastructure. Use the loosely coupled infrastructure to mediate the differences in connections, security and levels of service.
Enforcing homogeneity only works for large organizations where they are the “gorilla” in their value chain. This approach does not improve the cost structure of the company at the other end of the dictate. Unless the gorilla is their only customer they probably need to support multiple systems and the range of interactions the gorilla imposes on them is probably a limited set of the overall interactions they have with other organizations. The costs and the limited range of interactions delivered by this approach make it short term fix to gain market dominance by a gorilla at the expense of its suppliers and other companies that have similar value chains.
The approach of leaving it up to every organization to implement all the necessary infrastructure is probably the most cost prohibitive and approach that delivers the least amount of agility to the enterprise. The amount of costs inserted into the value chain is significantly. As a simple example consider the case of supporting MIME and DIME. These are two attachment formats used to attach non-XML data to SOAP messages. DIME is supported only by .Net while the majority of other toolkits supports MIME. For any company to support attachments in their external web service infrastructure they need to have a means to support both formats and also determine which partners are using which and ensuring that everything works seamlessly. This seams like a small task and it is the specifications, design, coding, management, testing and deployment should not account for more than 6 man months. This translates roughly to $50K, if there are 50 partners/customers in the value chain this equates to $2.5 million in direct costs added to the value chain just for this small feature. There is no resulting business value except that conversations can now happen seamlessly over SOAP. What happens when a partner insists on SOAP 1.2 support or REST rather than SOAP, or FTP? The costs of supporting this and all the other technologies quickly become a significant cost that is inserted into the value chain and provides no economic value in return.
The solution to this problem and that of forcing homogeneity on the value chain is to leverage shared infrastructure. In the example above the MIME – DIME conversion is done in the shared infrastructure as a service available to all participants. This means the cost of supporting MIME-DIME is fixed at $50K no matter how many participants there are using the shared infrastructure. This is true for all services provided, mediation is provided this allows every participant to connect using there own technologies and the infrastructure takes care of the mediation between parties. As the mediation is provided as a shared service it is extremely cost effective for all participants and reduces costs in the value chain dramatically compared to other approaches.
History has shown that the solution to many-many problems is shared infrastructure. As the value chain is a many to many problem and is going to stay that way there is a need for shared infrastructure for enabling integration to be as simple as plugging in a phone jack.